POSCO Annual Report

Geoffrey C. Boyd
Senior Analyst CLSA Asia-Pacific Markets

"As an analyst covering Asia's steelmaking sector, I naturally spend a fair amount of time researching what POSCO is up to. Over the past couple of years, POSCO has made significant advances in its investor relations program, improving both the quality and quantity of the information available. An analyst's job is never easy, but POSCO has made it a lot easier to get the information I need to do my job. Keep up the good work!"

During the year, three influential Korean organizations?the Korea Economic Daily, Korea Investor Relations Association, and Money Today?recognized us with their highest IR awards. While local accolades are always rewarding, it's especially meaningful to be highly rated by Asia's top analysts. In the 2nd annual Reuters Investor Relations Asia Equities Investment Report, both buy-side and sell-side analysts ranked us as having Asia's best company IR in the basic materials category as well as being the most improved. Even more rewarding was our ranking by sell-side analysts having Korea's best company IR.
In 2004, we will be working even harder to expand our shareholder base as we make building trust with the international investment community through timely and fair disclosure a top priority.

Inspiring Excellence
In 2003, we focused on upgrading the competitiveness of our workforce to meet the rapidly changing needs of business in this age of the digital innovation and globalization. At the heart of our efforts is an evolving competency- and performance-based human resource management process that is now transforming the way we hire, recruit, reward, train, and retain top talent to keep us growing and innovating at the forefront of our industry.

During the year, we hired 390 new employees as well as 60 experts in global management, cutting-edge manufacturing technology, and other key fields. We selected and sponsored more than 70 employees in study programs at home and abroad as we continued to systematically foster professional and leadership growth across our organization. We also upgraded our capabilities in future areas of growth by assigning our best people to strategic technical fields as well as key overseas investment projects in China and elsewhere.

Cultivating tomorrow's leaders is a top priority for us. During the year, our e-Leaders Academy career development program graduated its second class of 25 carefully selected managers. With a succession plan for over 60 department-level management positions now in place, we are currently in the process of implementing tailored mentoring and training programs to prepare these future managers for leadership excellence.

We executed a major overhaul of our compensation system in 2003. In addition to boosting the employee profit-sharing ratio, the new system increased the salary range for all manager-level and above staff to provide more flexibility in rewarding exceptional competencies and performance. We continue to fine-tune the impartiality and effectiveness of this new merit-based pay system by improving the alignment of individual and organizational goals during goal-setting and upgrading training for performance evaluators.

We continued to lead in employee welfare in 2003, becoming one of the first Korean firms to adopt a five-day, 40-hour workweek in advance of the government-mandated implementation scheduled for July 2005. As expected, the change from a 44-hour workweek has increased the productivity of our workforce, validating the win-win premise behind this important labor issue. We also upgraded the cafeteria benefit plan implemented in 2002, enabling our employees to pick-and-choose from a "menu" of benefits to match their specific needs and lifestyles.

Risk management
We have identified foreign exchange rate and interest rate risk as the market risks most likely to negatively impact our sales and profitability.

For foreign exchange rate risk, we estimate VaR using a 95% confidence level for both cashflow-at-risk and translation-at-risk. CfaR is calculated on short-term (1 month) and long-term (2~12 months) bases using a parametric analysis. TaR is calculated for foreign currency assets and debts extending beyond the current year using a Monte Carlo analysis. This simulation allows us to predict future exchange rate scenarios with a lognormal distribution created using historic information on the volatility of the underlying currency and a correlation coefficient. Both correlation and volatility are calculated using RiskMetrics Group's RiskMetrics™ data set.

For interest rate risk, we estimate IaR using a 95% confidence level for all variable interest-rate debt using a parametric analysis. This simulation allows us to predict future interest rate scenarios with a lognormal distribution created using historic interest rate information and a correlation coefficient. As above, both correlation and volatility are calculated using RiskMetrics Group's RiskMetrics™ data set.