Weak Steel Erodes Earnings at POSCO

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Korean steel producer, POSCO (PKX) reported disappointing financial results for 2013 on Jan 28. Net income in the year fell 43.2% year over year to KRW 1,355 billion (US$1,242.6 million). Earnings per share were KRW 15,530.09 per share (or US$3.56 per ADR).

Revenue

POSCO’s consolidated revenue in 2013 was KRW 61,865 billion (US$56.7 billion), down 2.7% year over year. The decline can be attributed to weak steel sector performance.
 
In 2013, crude steel production was down 4.1% year over year to 36.416 million tons. Finished product sales were also down 3.2%; export ratio of finished product sales was at 42.8%.
 
Steel sales for the automobile and shipbuilding industries increased 8.3% and 7.9% respectively. Steel demand from the home appliances industries was down 0.5%.
 
Margins

As a percentage of revenue, POSCO reported a year-over-year increase of 60 basis points in consolidated cost of goods sold. Gross margin came in at 11.1% versus 11.7% in 2012. Selling and administrative expenses in 2013 increased 1.5% year over year to KRW 3,864 billion (US$3.54 billion).

Operating profits in the year were severely impacted by earnings reduction in the steel sector. Operating margin was 4.8% in 2013, down 90 basis points year over year.

Balance Sheet

Exiting 2013, cash and financial goods of POSCO came in at KRW 7,179 billion (US$6.83 billion), up 9.9% year over year. Non-current liabilities increased 7.8% to KRW 18,392 billion (US$17.5 billion).

Outlook

For 2014, management of POSCO expects consolidated revenue to be approximately KRW 65.3 trillion. Finished product sales are estimated to be roughly 34.9 million tons; crude steel production is estimated at roughly 37.7 million tons while consolidated investments are likely to be approximately KRW 6.5 trillion.

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