Moody's lowers POSCO's earnings forecast

The international rating agency Moody 's Investors Service reports that the weak financial results of POSCO in the second quarter of 2015 will not affect the Baa2 rating and its stable outlook.

“We have lowered our earnings forecast for POSCO given the weaker-than-expected performance of its subsidiaries,” said Chris Park, Moody's senior vice president. “POSCO's leverage and low investment will allow it to continue to improve its financial leverage over the next 12-18 months,” says Park.

POSCO reduced its consolidated operating income by 18 percent on an annualized basis in Q2 2015. The decline is mainly attributable to weak earnings of its overseas steel operations and non-metallurgical businesses such as power generation and trading. In comparison, on a stand-alone basis, POSCO's operating income grew to KRW 608 billion in Q2 2015 from KRW 565 billion in Q2 2014 due to benefits from lower raw material prices and increased sales of high value-added products.

Moody's expects POSCO's 2015 consolidated operating profit to decline year-on-year as non-metallurgical earnings growth is sluggish and steel sector earnings are expected to weaken in the second half of 2015, which will not be offset by positive growth in the first half.

However, Moody 's expects its adjusted POSCO /EBITDA debt to decline to 4.2x in 2015 and further to 3.8x in 2016 from 4.5x in 2014. This level of leverage is consistent with the Baa2 category of the POSCO rating.

On the other hand, POSCO CEO Kwon recently announced a plan to increase the focus on its core business and the distribution of unhealthy subsidiaries. This plan should help POSCO to further improve its business finance profile.

POSCO is one of the largest global steel producers, with a dominant market position in Korea in terms of sales. The company manufactures a wide range of steel products, including hot and cold rolled products and stainless steel products.