l Due to a sluggish economy and weak demand caused by COVID-19, the flexible operation is underway reflecting profitability
l POSCO enhances cost competitiveness through inventory reduction and cost-cutting while increasing sales of high value-added products to improve profitability
l With more favorable market conditions than expected, Q3 business performance is expected to show improvement
On July 21, POSCO reported its Q2 business performance on a consolidated basis in its regulatory filing. POSCO’s Q2 sales totaled 13.721 trillion KRW, and its operating profit was at 167.7 billion KRW with a net profit of 104.9 billion KRW.
Total sales volume and prices have shown a decrease amid subdued global demand and sluggish market conditions caused by COVID-19. However, POSCO managed to secure relatively favorable performance with its global infrastructure business. Such achievement can be attributed to improvements in the profitability of its core businesses, such as stable profits from POSCO International’s Myanmar gas fields, better profitability of POSCO E&C’s construction and plant businesses, and expansion of POSCO Energy’s terminal business.
In 1Q, POSCO had achieved steady performance despite most global steelmakers recording deficit. However, as the impact of COVID-19 became apparent in 2Q, POSCO’s standalone sales recorded 5.884 trillion KRW with and operating profit of -108.5 billion KRW. The net profit was at 6.6 billion KRW.
Due to the decline in steel demand owing to COVID-19, production of crude steel and products decreased by 1.27 million tons, 870,000 tons, and sales volume by 850,000 tons, respectively, compared to the previous quarter. However, POSCO was able to minimize the impact of production decrease by adopting flexible production and sales system.
POSCO’s financial soundness has also strengthened as a result of its company-wide inventory reduction and cost-cutting measures. The company’s cash reserves recorded 12.064 trillion KRW on a separate basis, which is an increase by 341.1 billion KRW QoQ, while the debt-to-equity ratio dropped 1.4% QoQ to 26.9%. On a consolidated basis, net cash reserves showed a rise of 1.562 trillion KRW QoQ, amounting to 16.913 trillion KRW with debt-to-equity ratio recording 72.8%, a 0.7% point drop from the previous quarter.
Attributing to the financial soundness, POSCO maintains the highest credit rating among global steelmakers.
* S&P: BBB+ Stable, Moody’s: Baa1 Stable (as of July 2020)
Although weak performance in 2Q was inevitable due to COVID-19, POSCO plans to boost competitiveness with “Cost Innovation 2020,” a company-wide cost-saving program that the company has been carrying out since last year. The accumulated cost savings as of the first half of this year amounts to 175.2 billion KRW.
In addition, POSCO plans to strengthen its competitiveness by taking the Smart Factory to the next level — from the level of individual process optimization to the level of a single integrated process. POSCO has been leading the global steel industry with its smart factory to cut costs and improve productivity and quality of products.
In the next half of this year, POSCO plans to expand sales of high value-added products, such as GIGA steel (automotive steel) and PosMAC (for solar panel structure), optimize Sales-Mix, and reinforce exports to regions where steel demand is showing signs of recovery. POSCO expects that business performance will recover in 3Q with conditions of sales in the steel market more favorable than predicted.
POSCO is planning to lay a foundation for future profits through various measures at the group level. POSCO International will expand food trading and start full-fledged operation of the grain terminal in Ukraine, while POSCO E&C is to stabilize its Songdo International Business Complex project. POSCO Energy also will expand LNG terminal related businesses, and POSCO Chemical is to continue investment in secondary battery materials and conduct joint hydrogen peroxide projects utilizing byproducts of the steelworks.