Business context and reporting period
This Form 20-F was filed on April 29, 2021 by POSCO for the fiscal year ended December 31, 2020. The filing covers POSCO and its consolidated subsidiaries under IFRS as issued by the IASB. Although the request identifies POSCO Holdings Inc. and 2020 Q4, the provided filing is POSCO’s annual report; it does not provide a standalone fourth-quarter financial statement.
POSCO is an integrated steel producer with trading, construction, power generation, LNG logistics, materials and information-technology operations. It produced 40.6 million tons of crude and stainless steel in 2020, compared with 42.9 million tons in 2019, and had approximately 45.3 million tons of annual group capacity.
Key financial metrics
Amounts below are consolidated and presented in billions of Won unless otherwise noted.
| Metric | 2019 | 2020 | Change |
|---|---|---|---|
| Revenue | 64,786 | 57,467 | -11.3% |
| Gross profit | 6,324 | 4,668 | -26.2% |
| Operating profit | 3,223 | 2,054 | -36.3% |
| Profit attributable to owners | 1,864 | 1,581 | -15.2% |
| Profit | 2,038 | 1,748 | -14.2% |
| Basic and diluted EPS | Won 23,189 | Won 19,900 | -14.2% |
| Net cash from operating activities | 6,005 | 8,686 | +44.7% |
| Capital expenditures | 2,519 | 3,154 | +25.2% |
| Cash and cash equivalents | 3,515 | 4,755 | +35.3% |
| Total borrowings | 20,442 | 20,498 | Broadly stable |
| Net borrowings-to-equity ratio | 35.42% | 33.02% | Improved |
Gross margin declined from 9.8% to 8.1%, and operating margin declined from 5.0% to 3.6%. Profit before income tax fell 36.9% to Won 1,973 billion. The effective tax rate decreased from 34.8% to 11.4%, mainly because of tax benefits related to changes in the estimated deductibility of temporary differences and the off-gas power-station business combination.
Working capital increased to Won 19,193 billion from Won 18,593 billion. POSCO reported total available credit lines of Won 2,088 billion, of which Won 1,029 billion was used at year-end. Management stated that it had sufficient working capital and access to additional debt, equity and bank financing.
Debt consisted principally of Won 8,678 billion of short-term borrowings and current maturities and Won 11,820 billion of long-term borrowings. Contractual obligations totaled Won 60,839 billion, including Won 15,329 billion of long-term debt, Won 23,602 billion of purchase obligations, Won 17,191 billion of long-term shipping contracts and Won 739 billion of lease obligations.
Material changes versus the prior comparable period
- COVID-19 reduced demand, sales volumes and prices. The weighted average price of principal steel products decreased 6.0% to Won 898,008 per ton, while principal-product sales volume declined 3.9% to 29.2 million tons.
- Steel external revenue decreased 9.9% to Won 28,893 billion, and steel gross profit decreased 36.1% to Won 2,660 billion. The steel segment gross margin fell from 8.4% to 6.0%.
- Trading external revenue decreased 12.7% to Won 19,345 billion, partly because of lower trading activity, lower natural-gas prices and a 20-day maintenance suspension at the Myanmar gas fields. Myanmar gas-field revenue declined to Won 605 billion from Won 723 billion.
- Construction external revenue declined 5.3% to Won 6,576 billion, but construction gross profit increased 32.5% to Won 706 billion because of a greater mix of higher-margin plant and architectural projects.
- The Others segment’s external revenue decreased 6.5% to Won 2,979 billion, while gross profit increased 8.4% to Won 714 billion, supported by POSCO Energy and battery-material activities.
- Operating cash flow increased substantially because of improved management of receivables, inventories and payables and lower income-tax payments. Investing outflows increased to Won 6,259 billion, including higher capital expenditures and net purchases of short-term financial instruments.
- POSCO repurchased 4.1 million shares for Won 883 billion during 2020. Treasury shares increased to 11.17 million shares, or approximately 12.8% of issued shares. The 2020 dividend was Won 8,000 per common share, down from Won 10,000 in 2019.
Guidance, outlook, commentary, risks and unusual items
- Management expected 2021 property, plant and equipment cash outflows to be comparable to 2020, subject to steel demand, industry production conditions and broader economic developments. Capital plans may be delayed or reduced.
- Management’s response includes cost reduction, productivity improvements, fixed-cost control, increased sales of higher-value-added products, group restructuring and more active scenario-based sales planning.
- Key risks include continued COVID-19 disruption, cyclical steel demand, global production overcapacity, weaker Korean or Chinese demand, export-market volatility, foreign-exchange movements, imported raw-material prices, environmental regulation, trade remedies, cybersecurity, construction cost overruns and geopolitical instability.
- Iron ore prices increased from US$93 per dry metric ton in 2019 to US$109 in 2020, while coal prices decreased from US$176 to US$124 per wet metric ton. POSCO imports virtually all iron ore and coal used in steel production.
- Unusual 2020 items included Won 189 billion of goodwill impairment related to POSCO International, Won 27 billion of property, plant and equipment impairment including Won 17 billion related to a Pohang stainless-steel facility fire, and Won 198 billion of impairment losses on intangible assets.
- The Songdo project arbitration involves an asserted claim of approximately Won 2,400 billion against POSCO E&C; the related U.S. court claim was dismissed, while the international arbitration remained ongoing. POSCO E&C had not recognized a provision for the asserted claim.
- POSCO disclosed business and investment exposure to Myanmar following the February 2021 military declaration of a state of emergency. The filing stated that no business suspension or gas-delivery delay had occurred as of the financial-statement authorization date, but the future impact could not be estimated.
- The filing reports an unqualified audit opinion and effective internal control over financial reporting as of December 31, 2020. Critical audit matters included POSCO International goodwill impairment and estimated total costs for construction contracts.
Most important facts for investors to verify
- Confirm that the relevant issuer is POSCO rather than a later POSCO Holdings entity and determine whether quarterly 2020 Q4 data is required in addition to this annual filing.
- Reconcile consolidated IFRS figures with any K-IFRS or company-reported operating-profit measures, particularly for residential real-estate revenue recognition.
- Assess the sustainability of the 2020 operating-cash-flow increase, including the effects of working-capital movements and lower tax payments.
- Monitor steel prices, raw-material costs, production volumes, capacity utilization and the recovery of global automotive, construction and shipbuilding demand.
- Review debt maturities, variable-rate exposure, available credit lines, guarantees and contractual purchase and shipping commitments.
- Evaluate sensitivity of POSCO International goodwill and other investments to discount rates, terminal growth, commodity prices and foreign-exchange movements.
- Track the Songdo arbitration, other litigation and contingent guarantees, including the disclosed Won 4,070 billion maximum exposure for financial guarantees.
- Verify the status and financial impact of Myanmar operations, sanctions-related activities and any subsequent restructuring or divestment decisions.