New POSCO Chairman to Focus on Financial Structure Reform
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New POSCO Chairman to Focus on Financial Structure Reform
Chairman-designate Kwon to face calls for increased production of high value-added steel products and cost cutting

27(Thu), Feb, 2014



Chairman-designate Kwon Oh-joon of POSCO.

(photo: courtesy of POSCO, article by S. K. Lee)



POSCO Chairman-designate Kwon Oh-joon plans to take drastic measures to restructure the steelmaker¡¯s financials when he takes over next month, although he is a technology expert, sources close to the POSCO management said recently.

The steelmaker¡¯s debt rose high during the five years under Chairman Chung Joon-yang¡¯s regime while operating profit fell, requiring immediate action to remedy the situation, as it nears the crisis point, the sources said. 

 The chairman-to-be attended the board of directors¡¯ meeting on Dec. 28 at the POSCO head office at Yeoksam-dong, Seoul, and announced his intension to take actions to correct the financial situation of the steelmaker and to form a task force to be called ¡°Reform POSCO 1.0 Promotion Team¡± to take charge of the job.

 The team will be divided into four sections: the section for strengthening steelmaking operation competitive power upgrade, the financial reform section, the management infrastructure section, and the new growth engine section. President Kim Jin-il of POSCO Comtec, Vice President Lee Young-hoon of POSCO E&C and Executive Managing Director Yoon Dong-joon have been recommended to be inside the company directors at the board of directors meeting on Feb. 24. Four current directors including Chairman Chung Joon-yang, President Park Ki-hong in charge of the planning and finance sector, President Kim Joon-shik in charge of the Growth Investment Business Sector and Vice President Kim Ung-kyu will be retired as terms expire.

 All eight directors among the 40 top executives will be leading the four sections to be formally announced at the shareholders¡¯ meeting on March 14.

 Among the four sections of the special reform team, the future chairman thinks the financial reform section has a heavy responsibility because the financial condition of the steelmaker is grave and debt-laden. Last year, international credit rating agencies downgraded POSCO¡¯s credit rating, citing uncertain financial conditions. In response, the steelmaker held an IR session to explain that its debt ratio has been raised to 84.3 percent at the end of 2013, up 2.5 percent YoY.

 Financial sources both inside and outside of the company said the session was not enough to explain the financial situation that POSCO faces. They know that its total debts, which currently stand at 38 trillion won, is substantially higher than the 18 trillion won it had in 2008 at the time of the global financial crisis — less than half of the current debts. The new chairman will lead the company to increase its cash holdings by reducing inventories of raw materials and semi-finished products. Under the new management, POSCO aims to save 603 billion won in costs as top managers see there is still room for more cost cuts despite the fact that the company has been saving around 1 trillion won every year from 2006 to 2012.




(from left) President Kim Jin-il of POSCO Comtec, Vice President Lee Young-hoon 

of POSCO E&C and Executive Managing Director Yoon Dong-joon who have 

been appointed to be inside the company directors at the board of directors. 



The operating profit ratio, in the meantime, fell to 4.8 percent of sales from 17.2 percent, a drop of nearly 75 percent, while the number of affiliates expanded from 31 to 48. The number of affiliates expanded to as many as 71 at one time, but is now down to 48.

The new chairman will also have to focus on the increased production of high-quality steel products and find new markets.

 Under the new management, POSCO will push the production of high value-added steel products that are needed by automobile, shipbuilding, and energy industries to counter the low-quality Chinese steel products and the Japanese steelmakers attempts at taking advantage of the low yen. POSCO is the second largest producer of steel used in the production of automobiles and has been supplying its steel plates to such famed automakers as GM, Toyota, and Chrysler.  


   
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