Posco Holdings Inc (PKX) 2010 Q3 法說會逐字稿

Good morning, good afternoon, good evening, ladies and gentlemen. Welcome to the Macquarie conference call of POSCO. Our Chairperson today is Ms. Christina Lee. Christina, please begin your call and I'll be standing by for the question and answer session. Thank you.

Hello, everyone. Thanks for dialing in for the POSCO third-quarter earnings conference call. My name is Christina Lee from Macquarie. And we have here Mr. Young-Hoon Lee, Senior Vice President at POSCO, and Mr. Duk Il Yoon, Head of IR and Finance Team, and POSCO's IR team with us. Mr. Lee will first provide a presentation for the third-quarter result, and then we will take questions.

Thank you. Good morning. Welcome to POSCO's third-quarter earnings conference call. This is Young Hoon Lee, Senior Vice President in charge of Finance Department for POSCO. We posted our earnings presentation on our website a few hours ago, so I believe most of you have had a chance to look through it. So I'll make this statement very brief and go quickly into the Q&A session.

During the third quarter we relined our Blast Furnace and renovated the facilities in Pohang Steelworks. As a result, Steel production decreased by 1.8% and the sales volume fell as well. While sales of Cold-Rolled products were up, thanks to solid demand from Auto and Home Appliance sectors, others, such as Hot Rolled and Plate showed declines.

Raw material price rose again in the third quarter. We raised our product price in response, but high cost raw materials purchased since the second quarter began to fully impact our costs in the third quarter.

So although revenue rose slightly, to KRW8.5 trillion, operating income fell 40%, to KRW1.1 trillion, and operating margin fell to 13%. Still, our balance sheet remains strong. Assets grew to KRW46 trillion as we continue investments for growth. And total liability to equity ratio stayed below 35%. In consolidated terms asset size grew to almost KRW65 trillion, with the acquisition of Daewoo International now complete.

You can find our key activities and accomplishments in detail on our presentation, but I just want to highlight some points. We expanded domestic capacity. Lining of Pohang No. 4 Blast Furnace is complete. This will be the world's largest blast furnace in terms of annual production. Construction of Gwangyang new Steelmaking and Plate Mill is also complete, thereby, adding 2m tons of capacity.

We expanded our market base by putting more processing centers in key emerging markets. We made progresses in our overseas investment. In Indonesia, groundbreaking full construction of integrated Steel Mill is scheduled for later this month. In India, a joint venture with SAIL is speeding up as well.

Although Orissa Project is currently on hold due to administrative issues, we are hopeful that they will be resolved soon. We invested in raw materials and continue to secure technology leadership and to save costs.

Last, we successfully completed acquisition of Daewoo International. We believe this acquisition will generate greater synergy and play a crucial role in achieving our goal.

Now I want to talk a little point about business environment. Global Steel price has showed a weakness in the second quarter, began to stabilize in the third quarter, and the global demand is expected to rise 13% in 2010. But we believe the growth will come at a slow pace during the second quarter -- second half, sorry.

In China, Steel-consuming industries remain [strong] and [our] current demand will have another 7% growth this year, but we believe some inventory adjustments will occur as well. In the domestic market stable demand from Auto and the Home Appliance sector will continue. In the meantime, as new capacity becomes operational, imports will continue to drop.

To sum up, things aren't so bad, but they aren't so great either. So reflecting current market sentiments and a few changes in our original plan, such as construction delay for Pohang No. 3 Steelmaking plant, we revised our 2010 business plan and lowered our published guidance.

These are our new guidance for the year 2010. Crude Steel production will be 33.7m tons, sales volume 31.7m tons, revenue will reach KRW32.9 trillion, operating income will be KRW5.2 trillion and total investment amount will be KRW10.4 trillion.

That concludes my opening remarks. Thank you for listening and we will take now -- take -- we will now take your questions.

Thank you. Ladies and gentlemen, we will now poll for questions. (Operator Instructions).

Okay, thank you for attending the POSCO third-quarter earnings conference call. If there is any further questions, contact POSCO IR or Macquarie. Thank you very much, everyone.

Excuse me, Christina.

Yes.

We do have a question on line.

Okay, then we will take this question.

And that is from [Leo] from the Standard, from US. Please go ahead.

[Just] your estimate for DD&A for 2010, and also is there a preliminary estimate for DD&A for 2011 and also an estimate for capital spending for 2011?

Yes, sorry. Total -- hello.

Yes.

Yes. Total depreciation amount for year 2010, this year, we expect it to be KRW2.3 trillion. As for the projections for 2011 figures, it's a bit premature, and we will be providing you with more detailed numbers in the fourth-quarter result.

Could I just -- maybe in terms of direction with CapEx, even if you don't have the absolute number, would it be about the same or less than 2010?

Total capital expenditure or total investment amount for this year we provided KRW10.4 trillion. But this includes about KRW4 trillion in growth investments, including acquisition of Daewoo International. I don't think the major M&A is likely in the future, so total investment amount would probably drop.

And in terms of regular capital expenditure for facility expansion and upgrades, it will start to trail off as we complete most of the big new renovations this year.

Okay, thanks. That's very helpful.

Thank you.

Thank you. (Operator Instructions). Excuse me, Christina, we have no further questions.

Okay. Once again, thank you very much, everyone. Have a good day. Thank you.

Thank you for your participation. This concludes the conference.