POSCO firmly maintains top position as world’s most competitive steelmaker (click here for related article) whilst The Nikkei reports POSCO as world’s most profitable steel company.

Japanese newspaper, The Nikkei, which is the world’s largest financial newspaper evaluated POSCO as world’s fifth largest in crude steel capacity in its comparative analysis of last year’s EBITDA, yet world’s first in EBITDA per ton capacity ($164). (EBITDA is the net profit before subtracting interest, tax, depreciating and amortization indicating a company’s performance.)

Profitability Ranking of World’s Top Steel Producers (EBITDA—Crude Steel Capacity)

Source: The Nikkei published on July 25, 2018 (p.15)

World Steelmaker Ranking by Crude Steel Capacity

The paper states POSCO exceeds 90% of the world’s largest producing company, Arcelor Mittal, caused by advancement in POSCO’s profitability of overall businesses including successful business negotiations, secure operation management, and PT Krakatau POSCO’s transition to surplus.

On February 23, POSCO announced its second quarter fiscal earnings achieving $6.87 billion, up 8% from same time last year while at the same period recording $734 million in operating profit, a 40.5% surge owing to robust earnings at overseas major businesses such as POSCO Maharashtra, Indonesian integrated steel mill and cold-formed steel manufacturing company that achieved its largest quarterly profit thus far. Additionally, POSCO is seeking to achieve a two-figure operating profit in the third quarter having already managed a 10.7% rise, which is 2.5% increase from last year.

Meanwhile, India’s Tata Steel landed second place driven by Indian market’s overall growth causing a surge in operating capacity. Japan’s JFE Holdings and NSSMC stand third and fourth place respectively by expanding the sales of high-value products focusing on automotive steel sheets. Baowu Steel, on the other hand, is said to be challenged with domestic surplus compared to its high production capacity while lacking in product competitiveness.

POSCO has continuously pursued expanding its world premium high-value products since 2015 and as of the latter 2017, sales of high-value products have surpassed half the total sales. Furthermore, POSCO reported that current world premium product sales of 55.6% will feasibly reach the goal of 57.0%, forecasting ongoing profit growth. Compared to earlier this year, this year’s consolidated and non-consolidated sales goals have increased $1.96 billion and $1.16 billion respectively, amounting to $57.2 billion and $29.5 billion each.

Moody’s forecasted that POSCO’s financial status will improve in the next 1-2 years as a result of increased profits from the sales of POSCO’s high-value-added products and decreased borrowings due to the improvement of global market conditions. In particular, the ratings agency predicted that POSCO’s EBITDA (earnings before interest, taxes, depreciation, and amortization) will increase by 20-25 percent over the previous year, and its debt to EBITDA ratio will decline from 4.1 times to 2.8 times in the next 12-18 months.

Moody’s added that its affiliate, POSCO E&C, will also see its profitability improve in the future.

POSCO has reinforced the competitiveness of its steel business and improved its financial health and profitability since the inauguration of POSCO CEO Ohjoon Kwon in 2014, despite an unfavorable external environment marked by the global oversupply of steel and reinforced protectionism around the world.

POSCO has also been attaining its restructuring goal (149 cases) since 2014, and completed 146 cases of restructuring as of Q317, and should the company complete its restructuring by the end of this year, the number of POSCO’s domestic affiliates will be cut down to 38.

Its financial strength has also improved. POSCO’s consolidated debt ratio of Q3 dropped down by 1.5%p QoQ to 68.1%, the lowest ever since 2010, and its separate debt ratio was 16.3 percent, the lowest ever in its history.

POSCO increased its consolidated and separate sales projections by KRW 4.7 trillion and KRW 3.2 trillion, respectively, to KRW 59.5 trillion and KRW 28.8 trillion compared to its plans at the beginning of the year.

POSCO predicts that steel demand will continue to increase based on the restructuring of the Chinese steel industry, along with the anticipated robust growth of demand in emerging and developing countries. It plans to make continued efforts to generate revenues by securing financial strength, reducing costs and increasing the sales of high-value-added products.

Cover photo courtesy of CBS News.

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“POSCO’s ratings outlook was upgraded due to its improved financial soundness from regaining positive results and reducing debt,” remarked Joe Morrison, Vice President of Moody’s. “We anticipated that POSCO will sustain its stability for the next 12 to 18 months.”

Moody’s forecasted that POSCO’s operating profits this year before the upgrade will increase by approximately 25% year on year, and its overall debt will decrease by 14%. Furthermore, the net debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio is expected to be approximately 3.8:1, which indicates a decline compared to last year’s 4.7:1. The times interest earned ratio of EBIT (earnings before interest and tax) is expected to amount to 4.1:1 this year, which is an improvement from 3.2:1 in 2015. Moody’s analyzed that this financial ratio meets the requirements for POSCO’s “Baa2” rating.

This upgrade of ratings was significantly affected by POSCO’s Q3 earning surprise, according to Moody’s. The fact that POSCO’s Q3 operating profit exceeded 1 trillion KRW, due to increased sales of World Premium (WP) products and prices of steel products, had a great influence on the ratings upgrade. The Q3 results show a 58% increase year on year.

Moody’s had previously issued a negative rating to POSCO’s credit ratings outlook in February due to decreased profitability caused by oversupply. POSCO has steadily committed to restructuring since the inauguration of POSCO CEO Ohjoon Kwon in 2014, and recovered the outlook to stable in less than a year.

Global credit ratings consist of credit information provided by specialized credit rating agencies for investors by fairly analyzing and evaluating the management conditions and financial structure of public institutions and private companies worldwide.

POSCO Exceeds KRW 1 Trillion in Operating Profits in Third Quarter of 2016

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POSCO will be modifying its mid-term strategy in order to achieve “growth with substantiality”. On May 19 at the Korea Exchange in Yeouido, Seoul, POSCO had its first investors forum since CEO Kwon was installed as the new CEO. On this day, new management strategies to restore financial soundness based on a focus on the core steel business, mega growth, and management restructuring for efficiency were announced.

 Pictured here: CEO Ohjoon Kwon, speaking at the POSCO Investors’ Forum

According to the new management strategies, POSCO has plans to strengthen its EBITDA to 8.5 trillion won with Credit A ratings by 2016, to be at the global top standards for financial soundness.  At the same time, POSCO has plans to cultivate its source material and clean energy businesses to promote mega growth.

Pictured here: CEO Ohjoon Kwon, speaking at the POSCO Investors’ Forum

In order to achieve its mid-term management goals, POSCO plans to change from its former ‘Own & Compete’ based M&A strategy to a ‘Connect & Collaborate’ based strategic partnership, with plans to seek a diverse range of domestic and international companies.

POSCO’s business structure will be reformed so that the strategy that previously focused on expanding steel, materials, energy industries will now be focused on the core steel business and promote mega-growth engines in the two sectors of source material and clean energy. The projects nominated for focused development are source material which encompasses lithium, nickel and clean energy which includes fuel cells and clean coal businesses.

Other fields can be subject to subsequent business restructuring if it will increase the company value and meet the following principles:

1)      First, evaluate whether the entity is recognized as top tier in the domestic market or is seen as essential towards strengthening the competitiveness of the core steel business

2)      Second, even if it is a blue-chip affiliate, consider pushing ahead with the sale or IPO of shares that exceed what is necessary to maintain right of management

3)      Third, plan internal restructuring to strengthen efficiency based on business consolidation, divisions or other adjustments

 Pictured here: Attendees at the POSCO Investors’ Forum

The priority will be placed on restructuring that has the most impact and can relatively be done easily. Although specific plans for restructuring have not been confirmed yet, entities that have been selected will promptly push ahead to show results.

The reorganization that emphasizes the steel business will select seven strategic industries including automotive, marine and energy to grow sales and expand the sales percentage of profitable, premium products. In addition, in order to turnaround overseas business to surplus by 2016, POSCO plans to develop high added-value products in a timely matter to meet market demands and also strengthen solution marketing offerings.

The energy business plans to grow the domestic coal power plant market and target emerging markets for overseas growth while also fostering the fuel cell industry. It also has plans to devote initial investment towards securing technologies for the source material business to strengthen competitiveness.  Business entities including E&C, Trading, and ICT will focus on core competencies that will provide profitability and growth for the entire company.

Pictured here: Q&A session during the POSCO Investors’ Forum

If POSCO’s new management strategies run smoothly, POSCO can expect 32 trillion KRW in sales with 3 trillion KRW in operating profit, 9% operating profit margin, on a stand-alone basis.  On a consolidated basis, that would mean 78 trillion KRW in sales with 5 trillion KRW in operating profit, 6% operating profit margin. Debt-to-equity ratio can be expected to be lower as well.

Pictured here: Panel discussion at the POSCO Investors’ Forum

At the investors forum, CEO Kwon announced, “The strategy paradigm will change in order for POSCO to have stable growth and we will focus on strengthening competitiveness and improving profitability.” Moreover, he said, “With drastic restructuring focused on internal efficiency, we will give back to shareholders, investors, customers, partners, employees, local communities and all those who support and love POSCO.”

Pictured here: Ohjoon Kwon, speaking at the POSCO Investors’ Forum

Growth laid on internal strength will allow POSCO to achieve the new vision of ‘POSCO the Great!’