POSCO says to exit unprofitable businesses as weak steel demand caps profit growth

15 July 2015

South Korea's POSCO said it would shut down unprofitable local and overseas businesses as part of a restructuring plan aimed at boosting profit growth in the world's sixth-largest steelmaker as global demand for steel remains weak.

POSCO plans to reduce by about a third its overseas businesses while the number of local units would be cut by half with the aim of lifting EBITDA on a parent-only basis to 5 trillion won by 2017, from 4.5 trillion won in 2014, the steelmaker said in a statement.

The company had earlier reported a 7.5 percent gain in second-quarter operating profit, mostly in line with estimates, as weak steel demand continued to pressure margins.

"Steel prices, along with global demand, has fallen drastically and are having a grave effect on profits," CEO Kwon Oh-joon told an earnings briefing.

POSCO's operating profit in the April to June quarter was 607 billion won ($531.4 million) on a parent-only basis, in line with a consensus forecast of 597 billion won compiled by Thomson Reuters I/B/E/S.

The parent-only measure refers to earnings from POSCO's steel business, and excludes profit from affiliates.

It also set a steel production target of 37.8 million tons this year, largely unchanged from 2014, and lifted its sales target for auto steel plates to 9.5 million tonnes as of 2017, up from about 8.3 million tons in 2014.

The stock closed 3.9 percent lower, before the restructuring plan and earnings were disclosed, versus a 0.7 percent increase in the broader market.