Posco chief charts new directionsPosco Chairman Kwon Oh-joon has declared a paradigm shift for Korea’s largest steelmaker as the conglomerate aims to slim down by restructuring its business portfolio and improving its financial health.
“Our strategy has been to grow and expand, but I think that period is over and now we need to collect on investments,” Kwon said yesterday at its investors’ forum at the Korea Exchange in Yeouido, western Seoul. “Now is the time to generate cash, and since our main business is steel, we need to sell those steel products, but since production is limited, we need to enhance the value.”
Kwon, who became the chairman in March, said that in addition to Posco’s original steel business, it will focus on source materials and clean energy as growth engines.
The steelmaker cited energy storage materials like lithium and refined nickel, and fuel cells and clean coal.
Kwon set a goal of collecting earnings before interest, taxes, depreciation and amortization of 8.5 trillion won ($8.3 billion) by 2016, up 2.8 trillion won from last year, and regaining its “A” credit rating. Moody’s Investor Service recently downgraded Posco’s foreign currency bond rating from “Baa1” to “Baa2.” The rating is the second-lowest investment grade by the U.S.-based firm. Standard & Poor’s has rated Posco BBB+.
Under the vision “Posco the Great,” Kwon declared the company’s strategy will change from “own and compete,” which focused on growth through mergers and acquisitions, to “connect and collaborate.”
“Mergers and acquisitions are a good way for reconstructing, but we need to make more strategic alliances,” he said. “People say there are no forever allies and foes in the business world, but we will make forever allies to enhance Posco’s value.”
Under former Chairman Chung Joon-yang, Posco focused on bulking up, setting a goal of 200 trillion won in revenue by 2020. It has pursued M&As, but the plan was hit by a worsening market that suffered from too much supply and too little demand.
Posco’s operating profit ratio went from 15.6 percent in 2007 to 4.8 percent in 2013, while its debt ratio surged from 65.2 percent in 2008 to 84.3 percent in 2013.
Kwon said Posco also will seek initial public offerings for some of its unlisted affiliates.
There have been rumors that Posco might sell Daewoo International, which it bought in 2010 for more than 3 trillion won, and Posco M-tech, an underperforming material and iron-wrapping company.
“Daewoo International has been a cash cow for us ... but nothing has been confirmed,” Kwon said. “Posco M-tech is already restructuring by selling assets and cutting costs to survive on its own, like the rest of our affiliates.”
For the speculation about acquiring Dongbu Steel’s Incheon plant, which produces colored steel sheets, Kwon said the company will make a decision after due diligence. He revealed that the result is expected to come out late this month.
BY joo kyung-don [email@example.com]