POSCO’s New Strategy
POSCO announced its new management strategies at its Investors Forum held at Korea Exchange’s Seoul office on May 19, which was the first investment briefing after POSCO’s Chairman Kwon Oj-joon took office on March 14. The main points of the management strategies are concentrating on the steel business, laying the foundations for mega-growth, implementing a major restructuring of the business for management efficiency, and making a solid financial structure.
The Korean steelmaker is planning to secure world-class financial health and foster mega-growth engines in basic materials and clean energy areas by 2016 through 8.5 trillion won (US$8.3 billion) of its cash-generating ability and the recovery of its credit rating to A. In other words, the company made a plan to establish the foundations of achieving its new vision “POSCO the Great” through internal stability and growth.
As for the direction of mid-term strategies to attain management goals and objectives, POSCO is going to seek measures to strengthen business cooperation with companies at home and abroad. It will do so by changing strategies from M&A-oriented based on ownership and competition to those focusing on strategic partnerships based on business connection and cooperation.
In addition, the company modified its current strategy for its business structure that focuses on business expansion in forward and backward industries of steel, materials, and energy toward a new one aimed at nurturing mega-growth engines in basic materials and clean energy, led by steel. It also decided to foster the lithium and nickel businesses in the basic materials area, and fuel cells in the clean energy field.
The steel giant also made a plan to target any businesses for corporate restructuring to increase enterprise value. Specifically, it is going to review non-core businesses that are not conducting essential functions or businesses that do not occupy the top spot in order to secure a competitive advantage in its steel business. It will even pursue the sale or initial public offering (IPO) of outstanding affiliated enterprises to maintain management rights. On top of that, the company decided to undertake internal restructuring such as the merger, exchange, or separation of businesses to make its business structure more efficient.
As for the steel business, POSCO is planning to select and expand sales of seven strategic industries that are profitable and have decent market growth such as the automobile, marine, and energy industries, and to increase the sales ratio of highly-profitable premium products.
In the energy business, the firm is going to help the local coal industry flourish, penetrate the worldwide power generation market mainly with emerging countries, and nurture the fuel cell business. It also decided to focus on securing technologies and expanding domestic demand, and to eliminate any uncompetitive materials businesses. As for Engineering & Construction, trade, and ICT businesses, POSCO plans to concentrate on those that have core competencies in line with its optimal growth level and to make profitability in management a top priority.
If these strategies are smoothly carried out, the steelmaker anticipates that it will turn over 32 trillion won (US$31.3 billion) and post an operating profit of 3 trillion won (US$2.9 billion) and post an operating profit margin in the range of 9 percent in 2016. It also predicts that it will record 78 trillion won (US$76.2 billion) in sales, 5 trillion won (US$4.9 billion) in operating profits, and 6 percent or so in Return on Sales (ROS) after that year. The company’s debt ratio is also expected to be much lower.