PKX Reports 4Q; Outlook Impressive

Korean steel maker, POSCO(PKX - Analyst Report) reported its fourth quarter and fiscal year 2011 financial results on February 3, 2012. The company’s fiscal year net income plummeted 11.6% year over year to KRW 3,700 billion or KRW 42,406.9 per share (US$9.59 per ADR).

Revenue

POSCO reported consolidated revenue of KRW 68,939 billion (US$62.3 billion) in the fiscal year 2011, reflecting an increase of 44% year over year, driven by solid finished product sales, especially to shipbuilders and automakers.

Commencement of operations in new facilities drove crude steel production by 10.7% year over year to roughly 37.3 million tons in 2011. Export ratio in the year increased 340 basis points to 38.6%.

Margins

As a percentage of revenue, consolidated cost of goods sold jumped to 86.8% compared with 82.9% in the previous year. Operating margin decreased from 11.3% in the previous year to 7.9% in 2011, mainly due to weakness in the steel sector and higher input costs.

Balance Sheet

Exiting the fiscal year 2011, POSCO had cash and cash equivalents of approximately KRW 8,280 billion (US$7.5 billion), registering a year-over-year growth of 4.8%. Long-term liabilities of the company grew 43.4% year over year to KRW 18,074 billion (US$16.3 billion).

Outlook

For fiscal year 2012, management expects consolidated revenue to be approximately within the KRW 70.6-74.3 trillion range. Finished product sales are expected to be roughly 35.4 million tons; crude steel production would be roughly 38.3 million tons while consolidated investments are likely to be approximately KRW 8.3-9.5 trillion.

Global steel demand is likely to grow by 3% year over year while the forecast for the Domestic market is that it would register a 1% increase over the period. Spot prices for coking coal are likely to remain flat while limited increase can be seen in iron ore prices. Stainless steel demand growth is expected to be roughly 3.4%.

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