On February 16, international credit rating agency Standard & Poor’s (S&P) revised its outlook for POSCO’s BBB-plus credit rating from “negative” to “stable.”
S&P forecast that POSCO would maintain its EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) at 20%, which is higher than that of its global competitors. This is, in large part, a result of improved performance in sales (due to the increased sales of high valued-added products), its excellent operating efficiency, and a decrease in the oversupply of steel in the region.
S&P added that POSCO is expected to maintain its adjusted debt-to-EBITDA ratio at 2.5 – 3.0 over the next two years by creating a stable free cash flow and continuously reducing borrowings. As a result, S&P changed POSCO’s financial risk profile from “significant” to “intermediate.” In fact, over the past few years, POSCO improved its adjusted debt-to-EBITDA ratio from 3.8 in 2014 to 2.9 in 2016 by implementing various restructuring measures, including the sale of non-core assets.
S&P also predicted that its affiliate, POSCO E&C, would see its sales performance improve from last year by reinforcing its efforts to reduce costs.
In the midst of challenges such as a global economic recession and industry oversupply, POSCO has devoted a significant amount of effort to reinforce the competitiveness of its main business while improving its financial health and profitability. As a result, its consolidated operating profit increased by 19% YoY with consolidated sales coming to KRW 53.0835 trillion and its operating profit coming to KRW 2.8443 trillion.
Increased sales of POSCO’s World Premium Products, its high value-added products such as PosMAC and PosCoZy, along with corporate-wide efforts to improve profitability and reduce costs, led POSCO’s separate operating profit to increase by 17.7% YoY. As a result, its operating margin reached 10.8%, the first double-digit operating margin since 2011. POSCO’s stock price also rose by 55% compared to the first half of 2016. Moody’s, an international credit rating agency, also upgraded its outlook for POSCO’s “Baa2” credit rating from negative to stable last October.
POSCO continues to take steps towards maintaining its position as one of the world’s most competitive steelmakers. Since being nominated to serve a second term as CEO, Ohjoon Kwon has committed to strengthening POSCO’s financial outlook and secondary business growth. As part of its non-steel business ventures, POSCO recently completed the construction of the lithium factory at Gwangyang Steel Works and also announced its plan to invest KRW 300 billion in the cathode material business for secondary batteries.