Posco’s net income hits negatives for first time

Posco Group reported a net income loss of 96 billion won ($79.6 million) in 2015, hit by oversupply from China and tumbling prices of iron ore.

This was the first time that the nation’s largest steelmaker saw its net income fall into the negatives since the company was established in 1968.

“I feel responsible as CEO of Posco for net income becoming negative for the first time in our company’s history and stock prices remaining low,” Posco Chairman Kwon Oh-joon said at an investor relations forum held Thursday at the Korea Exchange.

Posco Group reported 58.19 trillion won in revenue in 2015, down 10.6 percent compared to a year earlier, and an operating profit of 2.4 trillion won, down 25 percent year on year on a consolidated basis. The growth rate for its operating profit was 4.1 percent, down 0.4 percentage points from 2014. This was worse than forecasts rolled out by the local brokerage industry.

Kwon pointed to cheaper products offered by Chinese rivals and currency fluctuation from global economic instability as the two biggest culprits in the group’s losses.

The value of the group’s assets fell 1.56 trillion won. Posco lost 866 billion won in its overseas properties such as iron ore mines in Australia and Brazil, due to local currencies being devalued against the greenback. It also lost 698 billion won in trading due to the stronger won compared to the currencies of its trade partners.

Despite the net loss, Posco’s steelmaking affiliate saw strong performance in sales last year.

It sold 35.3 million tons of steel products last year, an annual record for the company. This resulted in annual revenue of 1.3 trillion won, up 15.6 percent year on year, thanks to strong sales in its high-end products like automobile plates.

The group itself enhanced its fiscal soundness last year by obtaining 2.1 trillion won in cash by selling off some 34 affiliates and 12 properties. This helped Posco see its debt-to-asset ratio reach 78.4 percent last year, an all-time low for the group.

This year, Kwon vowed the group will strive for price competitiveness by cutting production costs and building facilities to produce value-added downstream steel products in Indonesia.

Posco Group also vowed to sell 35 more poor-performing affiliates this year, and said the weak won will help the group gain price competitiveness this year, with tangible benefits beginning in the latter half of the year.

The group aims to post revenue of 58.7 trillion won on a consolidation basis by focusing on high-end steels, aiming to produce 37.2 million tons. To keep developing specialized products, Posco plans to spend 2.8 trillion won on R&D.

Still, industry analysts rolled out mixed forecasts for Posco in 2016.

Some say the group will turn around this year, as the Chinese government announced last Friday it will cut steel production capacity by up to 150 million tons over the next few years to stabilize steel prices and rescue debt-ridden steelmakers.

Others forecast Posco won’t be able to benefit immediately, as the Chinese central government’s vow may be difficult to realize due to opposition by local governments there.

BY KIM JI-YOON [kim.jiyoon@joongang.co.kr]