KG Dongbu Steel, KG Group Acquisition Leads to Structural Improvement in One Year... Operating Profit Up 332.1% in H1 (Comprehensive)

[Asia Economy Reporter Hwang Yoon-joo] KG Dongbu Steel (formerly Dongbu Steel) has succeeded in improving profitability just one year after being acquired by KG Group. This is interpreted as the result of corporate restructuring activities such as company-wide business structure reorganization and securing financial soundness.

KG Dongbu Steel held a press conference on the 11th and announced that its consolidated operating profit for the first half of this year increased by 332.1% compared to the same period last year, reaching 56.629 billion KRW. Sales decreased by 9.5% to 1.1637 trillion KRW, and net profit turned positive at 32.1 billion KRW. The operating profit margin rose by 3.9 percentage points to 4.9%.

Operating profit in the second quarter was 28 billion KRW, up 139.3% year-on-year, and net profit turned positive at 27.7 billion KRW. Sales were recorded at 567.4 billion KRW, down 15.9%.

KG Dongbu Steel explained that despite the COVID-19 pandemic in the first half of this year, the improvement in performance was due to the full-fledged effect of corporate restructuring after being acquired by KG Group.

After being acquired by KG Group last year, KG Dongbu Steel boldly reorganized its existing business structure. First, to improve the financial structure, it absorbed and merged Dongbu Incheon Steel (KG Dongbu Steel Incheon Plant), which was being physically split and prepared for sale, achieving cost savings by eliminating unnecessary expenses such as logistics and system duplication costs.

The pipe business division, which had suffered chronic losses, decided to suspend operations (halt production) considering the external business environment and sold its production facilities. The construction materials business division, specializing in steel structural materials, established a new corporation called KG Dongbu E&C and transferred the relevant business operations. As a result, although the construction materials division had recorded losses for five consecutive years, it achieved a profit of 2.1 billion KRW in the first half of this year.

At the same time, activities to secure financial soundness and improve profitability through cost reduction were also carried out. As a result, through improvements in work methods such as maximizing production efficiency and reducing manufacturing expenses, cost competitiveness was secured, and profitability improved due to reduced interest expenses from debt reduction.

KG Dongbu Steel is also not missing investments to strengthen competitiveness. It is investing 65.5 billion KRW in the Dangjin plant to build two new color steel sheet lines capable of producing 300,000 tons annually, scheduled for completion in March 2021. Additionally, the steel specialized research institute, which received an investment of 10 billion KRW to strengthen R&D capabilities, is expected to be completed in the second half of this year.

Kwack Jae-sun, Chairman of KG Group, said, "KG Dongbu Steel has a history of chronic losses due to past failures in the hot-rolled steel business, but it holds the second-largest domestic color steel sheet and the number one overseas export sector in Seokdo steel sheets, possessing the potential to be the top surface treatment company." He added, "We will strengthen corporate competitiveness through the construction of a total of four color lines and a comprehensive research institute, and restructure the sales system to focus on exports to enhance value for customers and shareholders."