Dongkuk Steel Mill
June 2005
This presentation has been prepared solely for the purpose of offering investors an understanding of the company’s expectations.
Any forward-looking statements appearing in this material are subject to various risks and uncertainties, and may be changed
without prior announcement.
This memorandum is not intended to be an offer, or a solicitation of any offer, to buy or sell the securities mentioned herein. DongkukSteel Mill shall not be liable whatsoever for any loss, direct or consequential, arising from any use of this memorandum or its
contents.
IndexIndex
I. Company overview
II. 1Q 2005 results
III. 1Q milestones
IV. Demand forecast by product
V. 2005 forecasts
I Company overviewCompany overview
4
Timeline
Establishment (1954~1970)
� 1954 Establishment of Dongkuk Steel Mill
� 1963 First large-scale steel company in private sector (Busan)
Rebirth (2001~ )
� 2003 Sales surpass W2t
� 2004 Sales surpass W3t; market cap surpasses W1t
Development (1971~1980)
� 1971 First manufacturing of steel plates in Korea (Busan)
� 1976 Completion of two 30-tonne EAFs (Incheon)
Growth phase I (1981~1990)
� 1988 Listed on Korea Stock Exchange (IPO)
Growth phase II (1991~2000)
� 1991 Completion of 1m-tonne #1 plate mill (Pohang)
� 1993 Completion of Korea’s first 100-tonne EAF
� 1994 Permanent renunciation of strikes by labor union
� 1997 Completion of 140 tonne EAF / section line and 1.5 million tonne #2 plate mill line (Pohang)
5
Offices and steel works
Incheon plant
Seoul (Headquarters)
Pohang plant
Busan plant
South Korea
US branch
Japanbranch
Shanghaioffice
Capacity
1,120170
Total
Section
Rebar
Heavy plate 2,470--2,470
2,050
5,640
2,850
Total
2901,5103,840Re-rolled
130820
1201,380550
-1,5601,290Steel making (crude steel)
BusanIncheonPohang(‘000 tonnes)
6
Process
Slab Reheating Rolling Cutting Marking Plate
Scrap EAF1) LF2) Continuous Casting Semi-finished product
Rebar
Section
Rolling Reheating
H-beam, angle, channel, flat bar, and profile products Note: 1) EAF = Electric Arc Furnace
2) LF = Ladle Refining Furnace
7
Local market share (2004)
Note: Market share of sections based on H-beam sales
� Heavy plate
�Rebar
�Section
POSCO
56%
Dongkuk
Steel Mill
44%
Dongkuk Steel Mill 20%
INI Steel 40%
Others 22%
Korea Iron
& Steel 18%
INI Steel 70%
Dongkuk Steel Mill 30%
100--70
18
-
Korea Iron & Steel
100
100
Total
22
-
Others
-5644Heavy plate
-30Section
40-20Rebar
INI SteelPoscoDongkuk Steel Mill M/S (%)
8
ASP trends
2000 2001 2002 2003 2004 2005
(‘000won/tonne)
ASP trends
200
300
400
500
600
700
800
1 Q 2 Q 3 Q 4Q 1 Q 2 Q 3 Q 4Q 1 Q 2 Q 3 Q 4Q 1 Q 2 Q 3 Q 4Q 1 Q 2 Q 3 Q 4Q 1Q
Plate
Section
Rebar
495 (Jan 2004) → 560 (Mar) → 630 (Apr) → 710 (May) → 750 (Jun)PlatePlate
451 (Jan 2004) → 496 (Feb) → 537 (Mar) → 533 (Sep) → 508 (Jun 2005)Rebar (based on D10)Rebar (based on D10)
503 (Jan 2004) → 553 (Feb) → 613 (Mar) → 593 (Jun)Section (HSection (H--beam)beam)
(‘000 won/tonne)Basic price trend (2004)
9
5 years’ results
Note: * Dividend yield=dividend/yearly average share price
Dividend
Financial ratios
I/S (Wm)
Production
20042003200220012000
6.79.67.612.88.6Dividend yield* (%)
750500400300250DPS(won)
154.2163.3141.8147.2181.1Debt/equity ratio (%)
15.111.19.28.73.9OP margin (%)
456,235 131,879 86,494 14,874 -149,680 Net Profit
645,471 182,893 126,162 24,343 -175,462 Recurring Profit
492,950 258,268 180,162 154,837 60,752 Operating Profit
3,267,423 2,323,457 1,957,894 1,785,169 1,544,281 Sales
5,555 5,640 5,506 5,190 4,704 Finished steel (‘000 tonnes)
2,971 2,850 2,757 2,620 2,457 Steel making (‘000 tonnes)
1,5441,785
1,958
2,323
3,267
493258180155
61
2000 2001 2002 2003 2004
Sales
Operating profit
(Wb)CAGR 11.3%
10
5 years’ stock price movement
Historical low: W1,360 (Apr 2, 2001)
Historical high: W25,500 (Feb 4, 2005)
Share buyback Share buybackShare buyback & cancellation
Share buyback & cancellation
(Won)
2001 2002 2003 2004 2005
PER : 2.5
PBR : 0.7
Included in
MSCI Korea
(Jun 2005)
5 years’ stock price movement
11
Share buyback history
• Share buyback Mar~May (4 million shares @ W5,993/shr)
• Share buyback Oct~Nov (4 million shares @ W5,008/shr)20022002
• Share buyback and cancellation completed on Jul 30 (2,756,710 shares @ W4,905/shr)20032003
• Share buyback and cancellation completed on Aug 11 (2,300,000 shares @ W9,748/shr)20042004
12
Shareholder structure (as of Jun 2)
Note 1): Capital Research & Management Co (CRMC) reported holding of 5.08% on Mar 25
Related parties 23.6% Foreign investors1) 22.1%
Other 29.4%Treasury stock 24.9%
Shareholder structure (as of Jun 2)
76,881,000 (before share cancellations)Original no of sharesOriginal no of shares
5,056,710 (2003~2004)CancellationsCancellations
71,824,290Current shares outstandingCurrent shares outstanding
13
Affiliates (domestic, 2004)
75.0%0.60.81.3DK Shipping
54.0%-0.2-0.316.0Busan port pier #4 operator
80.8%5.15.5116.0Dongkuk Transportation
56.0%6.07.0114.3Kukje Transportation
100.0%3.58.1184.2Kukje Machinery
100.0%-3.5-7.145.0Union Coating
74.9%78.783.61,114.0Union Steel (listed)
ShareholdingsNet IncomeOperating IncomeSales(Wb)
Note: Company types
1=CR products, 2= Machinery, 3= Logistics
1
2
3
14
Merits
Steel portfolioSteel portfolio
• Optimal product mix
- Solid sales mix (2004)
: Steel plate 48%, rebar 31%, section 21%
: Sales well balanced between shipbuilding & construction industries
Relationship with labor unionRelationship with labor union
• Advanced relationship with labor union
- Industry’s first ever permanent strike renunciation in1994
- Management entrusted with salary decision-making (11 yrs)
- Cooperation improving profitability/productivity
Efforts for the futureEfforts for the future
• Vision
- Change & growth
- Core values: People, innovation, passion
- Core strategy: To strengthen competitiveness in steel business, improve business portfolios & organization
II 1Q 2005 results1Q 2005 results
16
Production and sales volume
77.1 37 85 48 Heavy plate
-76.0 -19 6 25 Rebar
-4.6 -62 1,292 1,354 Finished steel
Sales
Production
(‘000 tonnes)
Total
Sub total
Section
Export
Sub total
Section
Rebar
Heavy plate
Domestic1)
Steel making
ChgChg1Q051Q04
(%)
-6.1-841,2901,374
21.0 26 150 124
15.7 8 59 51
-8.8 -110 1,140 1,250
-16.8 -44 218 262
-15.5 -69 375 444
0.6 3 547 544
-10.1 -75 667 742
Note: 1): Including indirect exports
� Steel production declined due to transformer breakdown in Pohang (Feb 2005)
� Rebar/section shipment declined due to sluggish local construction demand and inflow of Chinese products
� 1Q04 saw speculative demand on anticipated steep hike in steel prices
17
Sales by product
� Overall sales increased around W160b due to ASP hike
� Sales of long products decreased due to soft building activity
22.0 5.4 30.0 24.6 Section
44.1 28.3 92.4 64.1 Sub total
Export
Sales1)
(Wb)
Rebar
Heavy plate
Sub total
Section
Rebar
Heavy plate
ChgChg1Q051Q04
(%)
-75.0 -8.4 2.8 11.2
110.6 31.3 59.6 28.3
21.3 130.8 745.9 615.1
-8.8 -11.9 123.5 135.4
-4.4 -9.1 196.3 205.4
55.3 151.8 426.1 274.3
23.4 159.1 838.3 679.2
Note: 1) Excluding sales of bought-in goods and by-products2) Including indirect exports
Domestic2)
18
Income statement
� Operating margin increased on stronger won (W1,024.3/US$ at end-1Q05 vs W1,153.6/US$ at end-1Q04),
despite higher raw-material costs
Chg1Q051Q04
(%)(Wb)(%)(Wb)(%)(Wb)
34.3 32.2 14.9126.1 13.793.9 Net Profit
28.9 38.6 20.4172.2 19.6133.6 Recurring Profit
-21.9 -4.2 1.815.0 2.819.2 (interest expense)
-46.1 -15.3 2.117.9 4.933.2 Non-Operating Expense
23.1 1.2 0.86.4 0.85.2 (interest income)
-7.5 -5.1 7.462.7 9.967.8 Non-Operating Income
28.7 28.4 15.1127.4 14.599.0 Operating Profit
-4.3 -1.3 3.428.9 4.430.2 SG&A
21.0 27.1 18.5156.3 18.9129.2 Gross Profit
24.3 134.4 81.5688.2 81.1553.8 COGS
23.6 161.5 100.0844.5 100.0683.0 Sales
19
Profitability trend
Sales and operating profit Margin/ratio trends
(Wb)
167%
149%154%
161%
167%
20%19%
14%
19%
23%
16%15%
20%
15%
10%
100%
110%
120%
130%
140%
150%
160%
170%
180%
1Q04 2Q 3Q 4Q 1Q05
0%
5%
10%
15%
20%
25%
30%
35%
40%
Debt/equity ratio EBITDA margin
OP margin
683.0
824.6
903.9844.5855.9
93.8139.3160.8
99.0 127.4
0
200
400
600
800
1,000
1Q04 2Q 3Q 4Q 1Q05
Sales Operating profit
20
Balance sheet
� Higher current ratio in 1Q signals improved financial stability
� Fixed liability rose due to W200b in corporate bonds (redeemed W100b in Jan 05, planning to redeem
W100b in Oct 05)
Chg (%)Chg1Q052004(Wb)
5.8 68.8 1,249.7 1,180.9 etc.
0.0 0.0 421.2 421.2 Paid-in capital
4.3 68.8 1,670.9 1,602.1 Equity
33.3 129.9 520.1 390.2 Fixed
-5.6 -115.9 1,964.7 2,080.6 Current
0.6 14.0 2,484.8 2,470.8 Liabilites
1.0 21.3 2,137.8 2,116.5 Fixed
3.1 61.5 2,017.9 1,956.4 Current
2.0 82.8 4,155.7 4,072.9 Assets
21
Leverage
Debt
Chg (%)Chg1Q052004(Wb)
Net debt
Cash & equivalents
Corporate bonds
Long-term
(Usance*)
Short-term
Total
6.962.1 962.3 900.2
4.037.7 971.1 933.4
18.093.0 610.0 517.0
-9.5-0.4 3.8 4.2
-3.7-48.2 (1,240.9 )(1,289.1)
0.57.2 1,319.6 1,312.4
5.499.8 1,933.4 1,833.6
Chg (%)Chg1Q052004
Exchange rate (US$/won)
* Usance (US$m)
-19.51024.31043.8
-1.9-24 1,211 1,235
III 1Q milestones1Q milestones
23
1Q milestones
General shareholders meeting (Mar 11)General shareholders meeting (Mar 11)
• Decided to pay DPS of W750 (9% dividend payout)
• Elected an external financial expert to BOD to improve company transparency (External/internal ratio for BOD members now 6:5 )
Strengthen group integrationStrengthen group integration
• Link/integrate group affiliates to create synergies
• Improve management efficiency by rotating employees among affiliates
Group business evaluation projectGroup business evaluation project
• Select strategic subject through group business evaluation
• Derive strategic KPI with BSC method based on strategic subject
• Develop managing and evaluating tool for strategic KPI by individual officer (director’s MBO)
Form organization to promote innovationForm organization to promote innovation
• To attain company’s overall goal and improve operations
• Build and stabilize IT solutions
Management
24
1Q milestones
Formed task force to establish central R&D center (Mar)Formed task force to establish central R&D center (Mar)
• Center to strengthen group R&D capability
• Task force to create preferable environment
TMR (Thermo Mechanical Rolling) technologyTMR (Thermo Mechanical Rolling) technology
• Fourth trial test in March; planning to acquire certification
• Production to commence from Jul 2005
Production
25
1Q milestones
Stable procurement of slabStable procurement of slab
• Began procuring slab from Corus (Jan, 4.27m tonnes for 10 yrs)
• MOU with Shougang group (China) (Mar, 0.25m tonnes a year)
• Long-term relationships with JFE, CST, BSL and Shagang
• MOU with CVRD to build slab mill in Brazil (May)
Raw material
Finance
Corporate bond issuance (Jan)Corporate bond issuance (Jan)
• Amount: W200b (W100b in 3-year bonds, W100b in 5-year)
• Coupon: 4.12% for 3-year bonds, 4.83% for 5-year
• Impact: Financing cost reduced by rating rise (BBB+ → A-)
IV Demand forecast by productDemand forecast by product
27
Market overview
• Strong demand due to increased
shipbuilding activity Heavy PlateHeavy Plate
• Tight supply expected in premium
market due to POSCO’s facility
rationalization. Low-end market should
edged downward on import overflow
1Q05 2Q05~
• Local demand sluggishRebarRebar
• Demand pickup expected thanks to
investment in public works.
• Decline in demand due to delayed
construction work in commercial/
industrial sector
SectionSection
• Recovery in fixed asset investment,
SOC projects, and economy should
lead to demand pickup.
28
Demand forecast
Source: Korea Iron & Steel Association (Apr 2005)
Section
Rebar
Heavy plate
Chg (%)Chg200520042003(‘000 tonnes)
-0.4 -17 4,730 4,747 4,538 Production
-2.5 -97 3,860 3,957 4,171 Apparent consumption
-4.1 -441 10,295 10,736 11,405 Production
-5.2 -592 10,795 11,387 12,374 Apparent consumption
5.7 320 5,890 5,570 5,198 Production
5.5 414 8,005 7,591 5,850 Apparent consumption
V 2005 forecasts2005 forecasts
30
Production & sales
Note: Excluding sales of bought-in goods and by-products
� Steel production declined due to transformer breakdown in February
� Production of finished steel should be maintained, with sales up 10%
※※※※ Forecasts are for internal use which is subject to change and are not intended to be an offer to buy
or sell the securities mentioned herein.
Sales
Production
Sales (Wb)
Section
Rebar
Heavy plate
Total
Finished steel
Steel making
(‘000 tonnes) Chg (%)Chg20052004
10.1328.6 3,578.0 3,249.4
-1.3-16 1,180 1,196
-5.4-107 1,890 1,997
6.8157 2,480 2,323
0.634 5,550 5,516
-0.1-5 5,550 5,555
-2.4-71 2,900 2,971
31
Jun 9 announcement
Takeover of You Takeover of You EalEal ElectronicsElectronics
• To buy 28.7% stake (W88b) in Youeal Electronics
• Youeal electronics to be managed independently by experienced staff
• Planning to profile as specialized display & telecommunication equipment maker
• Targeting W2t in sales, W300b in net profit in IT business by 2010
� IT industry chosen as Dongkuk Steel Mill’s future growth engine
Description ofDescription of YouealYoueal ElectronicsElectronics
• Established : 1982 (Registered in KOSDAQ as of 2001)
• No of employees : 633
• Paid-in-capital : W5.69b (Shares outstanding: 11,372,200 common shrs with W500 par value)
• Market cap :W 286.6b (Share price at the end of May: W25,200)
• Main products : Handset keypads, High-density flexible PCBs for FPD
• 2004 results : Sales W216.6b, Operating profit W38.7b (OP margin 17.9%), Debt/equity ratio 28.2%