OREANDA-NEWS. May 16, 2014. S&P (Standard and Poor`s), an international rating agency, announced on April 29 that it maintained the long-term corporate credit rating on POSCO at BBB+ (negative).

According to S&P, the reason it assigned a higher level than Moody`s did was that the credit rating of POSCO is expected to improve over the next 24 months based on: a significant reduction in capital investment; continuous non-debt financing; and a gradual improvement in business showings.

S&P, indeed, forecasted that POSCO`s a debt to EBITDA ratio would be less than 3.5 times by the year 2015.

The outlook reflects its expectation that POSCO`s non-debt financing plan would offset the surplus cash flow, which now stays negative, and turn this to positive from 2015. Moreover, it expects that additional cash flow would be created from, for example, initial public offerings of POSCO`s subsidiaries and disposal of small parts of subsidiaries and non-core assets.

Furthermore, S&P added that the efficient structural reform of management depends on the newly appointed management`s will to improve the financial standing.

Prior to this, POSCO announced that it marked 15.4401 trillion won in sales, and 731.3 billion won in business profits in the first quarter based on the consolidated financial statement released at the conference call held for IR (Investor Relations) on April 24.

Although sales and business profits decreased over the last quarter due to the global economic downturn, the operating profits to sales ratio nudged up to 4.7% with improved profitability in the non-steel businesses.

POSCO alone marked 7.3638 trillion won in sales, and 517.7 billion won in business profits.

Despite the drop in the Chinese steel price, POSCO was able to record an operating profit to sales ratio of 7.0% with a quarter-to-quarter increase of 30 billion won in business profits based on the non-consolidated statement by reducing material purchase prices while maintaining product prices at the same level as in the last quarter.

POSCO enhanced its customer-oriented sales drive through technological convergence with marketing, which resulted in improved profitability. Further, it increased the sales portion of its seven key high-value-added product areas including automobiles, shipbuilding and energy steel pipes from 48% in 2013 to 51%.

Its efforts to ensure financial soundness were also continued.

In March, it reimbursed 700 million dollars worth of high-yield bonds with yen bonds issued at low interest last December and its own funds, and in doing so, reduced interest expenses and loans as well. In addition, it made various efforts to improve the financial structure, for example by reducing the inventory turnover period, and as a result, its cash and cashable assets increased by 46% compared to the end of 2013, reaching up to 2.330 trillion won based on their non-consolidated statement.

POSCO is expected to further improve its cash flow as it adjusts its investment share in PF (Project Financing) for POSCO E&C and cuts down on investments this year.

In this quarter, business performance of major affiliate companies, including trades and construction, improved. POSCO E&C reported a 6.6% operating profit rate, which is 2.2 percentage points higher compared to the last quarter, and Daewoo International also marked an operating profit rate of 1.3%, recording an increase of 0.4 percentage points.