South Korea's Posco net profit up 77% in Q4

Big cost cuts and revived demand for steel helped push South Korean steel maker Posco's fourth-quarter net profit up 77%, and the steel giant forecast higher sales this year, suggesting a solid year ahead.

However, the quarterly result came in below analysts expectations and wasn't enough to stop the company's full-year net profit from slipping as lower product prices continued to weigh. Global steel makers have been beaten down by the economic slowdown that hit the industry in late 2008, but analysts expect Posco to post stronger operating profit this year on possible price increases.

Posco, one of the world's largest steelmakers by production, also said it is on the look out for acquisition targets this year with its hefty cash reserve of about 6.754 trillion South Korean won ($6.02 billion). The comments came after it announced Thursday a 15% stake purchase in Australia's Roy Hill mine for an undisclosed amount, a move that will help the company secure more raw materials.

Its fourth-quarter profit jumped to 1.275 trillion won from 721 billion won a year earlier. Sales fell 12% to 7.288 trillion from 8.305 trillion, the company said in a statement.

A Dow Jones Newswires poll of nine analysts had forecast a net profit of 1.499 trillion won.

The company blamed higher electricity costs for the quarterly result failing to meet market expectations.

For full-year 2009, the world's fourth-largest steelmaker by output posted a 29% on-year decline in net profit to 3.172 trillion won from 4.447 trillion won, while sales fell 12% to 26.954 trillion won from 30.642 trillion won.

"Plants' utilization rate stayed around 80% due to decreased demand from construction companies, car makers, home appliance makers and Posco had to lower inventories, which dragged down the full-year results," Chung Ji-yun, an analyst at Hi Investment & Securities, said.

For 2010, however, Posco aims for sales of 29.5 trillion won and steel production of 34.4 million metric tons, while planning to raise output to 40 million tons in 2012.
It will raise the ratio of research and development investment to sales to 1.7% this year from 1.5% a year earlier and set a cost-cutting target of 1.150 trillion won.
Posco has also earmarked 9.3 trillion won in capital expenditure for this year for maintenance at Pohang's No. 4 blast furnace, completion of Gwangyang's shipbuilding plate plant and mergers and acquisitions. In 2009, Posco's capital spending budget was 4.9 trillion won.

"We believe this year will be a remarkable year for Posco as we will take an aggressive approach this year in the domestic M&A market," Posco Chief Executive Chung Joon-yang said.

Although Posco ruled out raising steel product prices for now, analysts expect significant on-year growth in operating profit in the first and second quarter.
With ample cash in its coffer, Posco said it will be aggressive in the mergers and acquisitions market this year to seek greater synergy with an energy exploration and a shipbuilding company.

Companies Posco has shown an interest in so far include Daewoo International Corp. and Daewoo Shipbuilding & Marine Engineering Co.

"We will make acquiring Daewoo International a priority as it would yield great synergies from an investment standpoint in the field of energy exploration," Mr. Chung said, adding the company may consider buying Daewoo Shipbuilding once it is up for sale in the market.

Source: http://online.wsj.com