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2017 CEO New Year's Message...

Jan. 02, 2017
Happy New Year!

As we greet the New Year of the Rooster, I am delighted to join all POSCO Family members in welcoming the Year 2017 both at home and abroad, including POSCO Daewoo, POSCO E&C, POSCO Energy, POSCO ICT and POSCO Chemtech as well as our members in China, Japan, Americas, Indonesia, Vietnam and India. I would like to take this opportunity to thank all our employees for their sincere efforts in the past year.

2017 is the year of the ``Fire Rooster`` which symbolizes emanation of light amid darkness awakening all existence and spirit. I wish such light of hope shines on everyone so that we can enjoy another meaningful year together.

My fellow POSCO Family Members,

2016 was by no means an easy year for us. We started off with a consolidated net loss while withstanding the burden of excess global supply and the pressure of rising prices of raw materials. To rub salt into the wound, we faced the daunting challenge of addressing hardships posed by social issues at home.

Nevertheless, POSCO was able to achieve two-digit profit margin as well as over 50-percent jump in stock value by focusing on sales of high value-added products based on solution marketing, engaging in extensive cost-saving efforts and generating revenues via the ``IP Project.`` Such accomplishment was largely attributable to the devotion of all our Family members.

Despite a sharp decline in profitability of some domestic affiliates, the consolidated performance of the Group improved significantly due to the successful management across many of our overseas steel subsidiaries. I would like to thank everyone for all their hard work and dedication under unprecedented challenges.

Fortunately, we are expecting some improvements in the supply-demand imbalance witnessed last year with a slight reduction in steel production in China. Further improvements in the global steel market is highly likely as the global economy begins a gradual recovery led by the US.

However, domestic steel demand is unlikely to pick up amid sluggish growth in steel-related industries and the persisting burden from the price of fuel and raw materials. What is worse, the spread of trade protectionism across developed and developing countries alike is expected to further deteriorate our export environment. The continuous inflow of imported steel will add more pressure to the already troubled market from external woes.

Moreover, our competing mills have been accelerating consolidation and expansion to maintain their dominance in their respective local markets while also focusing on development of high-end products. At the end of the day, all these factors point to ever intensifying competition both in terms of quantity and quality.

My Fellow POSCO Family Members,

Doing business in such a harsh environment is much like fighting in a silent, yet intense battlefield. In Korea, many companies in various sectors are undergoing restructuring for their sheer survival. If we look at the Northeast Asian region, Korea, China, and Japan are fiercely competing against one another to maximize their presence in the regional market. Globally, we are witnessing the ever-rising tensions in trade relations among countries resembling a brutal war without guns.

In order to wisely navigate such delicate waters, we should stay focused with a strong sense of urgency. In 2017, we must solidify our profitability on a par with leading global players, complete our restructuring process as part of IP 2.0, and strengthen our foundation for future growth.

First, we must further outpace our competitors in terms of profitability by upgrading our steel business with proprietary technologies. Now that the competition in the steel industry is all about quality, we must focus on expanding sales of WP products that are differentiated by not just Technical and Commercial Solutions but also Human Solutions. Furthermore, we should enhance the quality of WP products through early commercialization of high-manganese steel and Giga grade steel. We will be able to generate higher customer value and maintain our market share in the domestic market only when we raise our product portfolio to WP level based on Solution Marketing. At the same time, we must transform our production sites into Smart Factories so that we can differentiate ourselves in terms of both production cost and quality.

Second, we should strengthen POSCO Group's business structure by continuously restructuring low-profit business and raising their efficiency. Non-steel business within the Group has been trapped in a low-profit cycle, undermining both their profitability and growth potential. To pull these businesses out of the vicious trap, we must first continue our restructuring efforts from last year to rationalize and optimize the Group's business structure. In particular for the construction and energy sectors, we should complete the restructuring process and accelerate development of new projects that can create powerful synergy based on consolidated strengths of relevant affiliates.

Third, we must ensure future growth engine by securing competency of our own based on ``Smart Solution.`` The fourth industrial revolution has fundamentally changed the rules of the game in our industry. At times like this, it is critical to develop areas, where we can ensure differentiated competitive edge based on competency of our own, into future growth engine. One example of such area in steel business is Smart Factory through which we must maximize cost competitiveness. The Group as a whole should consolidate strengths of different affiliates to ensure new business capability and positive brand image by building Smart Energy, Building and Town. In the field of clean energy, the priority should be on expanding the LNG midstream business and solidifying the basis for ``POSCO Smart Grid`` while nurturing energy materials business, including lithium, high-purity nickel for anodes, and cathode and anodes for rechargeable batteries, as one of the Group's major growth pillars.

Finally, we must engage in efforts to establish flexible and creative corporate culture. We are currently living in a ``VUCA`` world. VUCA stands for Volatile, Uncertain, Complex and Ambiguous, a trendy acronym that I was recently reminded of by one of our Young Board members. Agility and creativity are critical in a VUCA environment. We should be able to deal with rapidly changing business environment with agility, and promote creative business culture that inspires employees to constantly come up with innovative ideas. By actively taking into account every employee's views and ideas, we should further develop them into worthwhile and profitable projects.

To that end, we should consider adopting how employees work at successful start-ups to bring smart two-way communication into our daily working culture. Above all, I would like to urge all employees to engage in building an action-driven organizational culture with a strong sense of ownership represented by the ``I am POSCO`` spirit.

My Fellow POSCO Family Members,

The Year 2017 is another important year for POSCO Group as we brace ourselves for the next 50 years, after half a decade of successful growth, that will allow us to take the next leap. We now stand graciously half way towards becoming a centenarian company.

Undeterred by many small and big challenges for the past three years, we stood firm and united with the common goal of achieving ``Innovation POSCO.`` Your dedication and commitment have given us the conviction that POSCO Group can dream of an even more promising future together.

Around this time last year, we reported a consolidated net loss for the first time since our foundation in 1968. Even under such dire circumstances, we all rolled up our sleeves and unleashed our potential to the fullest extent to overcome the crisis. Such painstaking efforts have resulted in an incredible turn around resulting in an all-time low debt-to-equity ratio.

If we continue on with last year's endeavor with an equal amount of desperation and a sense of urgency, I am confident that we can achieve even higher goals in 2017. Instead of resting on last year's laurels, I urge all our Family members to bring your ``A`` game once again this year.
Let us all continue our journey towards achieving ``POSCO the Great.``

Once again, I wish you all happiness, health and success in the New Year.

Thank you.

Ohjoon Kwon, CEO

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4 2017 CEO New Year's Message Jan. 02, 2017
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