POSCO Annual Report 2008 Contents 00 Financial Highlights 34 Review of Operations 50 Sharing POSCO Annual Report 2008 02 CEO’s Letter 36 Steel 56 Milestones 08 Board of Directors 40 E&C 57 Consolidated Financial Statements 42 Energy 1 2 Vision 2018 150 Global Network 44 IT 1 4 Going Green 46 Research & Development 152 Executive Officers 24 Securing Leadership 48 Environment 154 Investor Information Headquarters 1, Goedong-dong, Nam-gu, Pohang Gyeongsangbuk-do 790-785, Korea Tel. 82-54-220-0114 Fax. 82-54-220-6000 Seoul Office POSCO Center, 892, Daechi-4-dong Gangnam-gu, Seoul 135-777, Korea Tel. 82-2-3457-0114 Fax. 82-2-3457-6000 Pohang Works 5, Dongchon-dong, Nam-gu, Pohang Gyeongsangbuk-do 790-785, Korea Tel. 82-54-220-0114 Fax. 82-54-220-6000 Gwangyang Works 700, Geumho-dong, Gwangyang Jeollanam-do 545-711, Korea Tel. 82-61-790-0114 Fax. 82-61-790-7000 www.posco.com WorldReginfo - be4dd6cf-8646-406d-b6b5-52345925e8de Financial Highlights In 2009, continuing our historic forty-year legacy, POSCO has begun its next chapter in Creating Another Success the planet and to the smart, respectful use of resources. Already, we have implemented Green Management Story. We are fulfilling Vision 2018, the bold plan set into motion last year that maps the path toward global throughout our worldwide operations, integrating vision, evaluation, policy and practices that are environmentally leadership. The “New POSCO” pursues growth and profits with stability and sustainability. We are committed to friendly, impressively cost-efficient and innovative. Looking ahead, as we navigate the current uncertain challenges, extending our steel-making business, identifying new growth engines and investing in advanced technologies and grow the company with creative and eco-friendly products, we are steering toward our mission of Vision 2018. as we become a world-first, world-best company. At the same time, the New POSCO is dedicated to protecting POSCO intends to be a Global 3, Top 3 Steel Leader. Steel Energy POSCO produces a diversified portfolio of high-grade steel products at plants around the world, including seven outside Korea. POSCO Since 2006, when POSCO acquired POSCO Power in Korea, we have focused on the energy business as a key new growth engine. Specialty Steel manufactures high-quality steel for industrial products. POSCO Coated & Color Steel produces galvanized, aluminized and We are actively identifying opportunities for power, natural gas, overseas resources, fuel cell generation and renewable energy projects color steel sheets. At Zhangjiagang Pohang Stainless Steel in China, we produce stainless steel in an integrated production system. By and pursuing energy businesses that help reduce CO2 emissions. Our professional engineers are building the foundation for POSCO’s developing plants in key markets, including an integrated steel mill in India, a cold-rolling mill in Vietnam and a continuous galvanizing line future by developing projects that generate new and viable energy solutions. in Mexico, we are extending our global reach. 742 84 113.7 4.9 6,836 4,605 37,705 76 34,668 4.5 6,062 567 103.0 32,779 34,709 4.2 99.8 71 5,203 413 4,079 31,420 30,071 31,184 92.5 4.0 3,950 61 4,645 28,752 401 3,929 31,054 58 71.8 3.8 23,613 4,243 385 3,530 ’04 ’05 ’06 ’07 ’08 ’04 ’05 ’06 ’07 ’08 ’04 ’05 ’06 ’07 ’08 ’04 ’05 ’06 ’07 ’08 ’04 ’05 ’06 ’07 ’08 ’04 ’05 ’06 ’07 ’08 ’04 ’05 ’06 ’07 ’08 ’04 ’05 ’06 ’07 ’08 Sales Operating Income Net Income Crude Steel Production Sales Operating Income Debt to Equity Return on Assets (KRW Bn) (KRW Bn) (KRW Bn) (Th. Tons) (KRW Bn) (KRW Bn) (%) (%) E&C IT Founded in 1994, POSCO E&C is an award-winning global contracting enterprise. With expertise in building the infrastructure of Launched in 1989, POSDATA is a top global IT service provider. We are involved in such strategic business initiatives as e-government developing countries, such as new cities and plants, the company is rapidly expanding into such markets as Africa, Vietnam, India and Chile. projects, Electronic Toll Collecting Systems (ETCS), Mobile WiMAX, rail transit telecommunications and u-City development. We also focus POSCO E&C’s competitive abilities and technologies fuel synergistic opportunities with POSCO’s widening worldwide steel business. on high-profit businesses such as RFID and intelligent industrial robots. POSDATA delivers convenience, innovation and value across all of its client industries. 384 291 65 4,590 21.6 10,074 365 59.2 59.1 3,971 Civil 51 258 7,799 Works 342 56.8 44 3,723 5,311 244 17% 338 54.2 3,527 Plants 7.1 4,188 32 320 198 40% 6.7 38.4 5.1 4,099 26 2,724 Housing & 94 Building 43% (-)3.2 ’04 ’05 ’06 ’07 ’08 ’04 ’05 ’06 ’07 ’08 ’04 ’05 ’06 ’07 ’08 ’04 ’05 ’06 ’07 ’08 ’04 ’05 ’06 ’07 ’08 ’04 ’05 ’06 ’07 ’08 ’04 ’05 ’06 ’07 ’08 Orders Received (E&C, AC) Sales Operating Income (E&C, AC) 2008 Sales by Business Unit Sales Cash Flows from Capital Adequacy Ratio Total Assets Growth Ratio (KRW Bn) (KRW Bn) (KRW Bn) (%) (KRW Bn) Operating Activities (%) (%) (KRW Bn) WorldReginfo - be4dd6cf-8646-406d-b6b5-52345925e8de POSCO is not only securing a stable supply of materials we need but also finding new ways to save on costs. Our emphasis on cost reduction keeps the company flexible in a cyclical industry and also permits us to leverage opportunities as they arise. In 2008, the company has set a cost-reduction target of KRW 750.6 billion. Our continuous cost reductions, helped by management discipline and forward-looking production methods, are making us more competitive. Going Green Securing Leadership WorldReginfo - be4dd6cf-8646-406d-b6b5-52345925e8de Despite the challenging worldwide economic conditions, last year, we achieved record sales and net profits. We are Creating Another Success Story for POSCO. POSCO Annual Report 008 WorldReginfo - be4dd6cf-8646-406d-b6b5-52345925e8de CEO’s Letter Dear Shareholders and Customers, 2008 was a year of record-breaking performance for POSCO. The global financial crisis during the latter half of the year, however, put pressure on the general economy, making business environment more difficult than ever. Today, we are facing formidable challenges. Nevertheless, we believe great success is created out of crisis. With resolute spirit—not fearing for challenges and coming out stronger under crisis—POSCO became a leader in the global steel industry. Building on this legacy, and with new leadership, we will transform this latest crisis into opportunity, thus continuing our sustainable growth. In light of the new economic environment, I plan to adjust our speed and our steps forward. The following three principles are the basis of our management directions: “Open Management,” listening more to the voices of stakeholders and expanding communication and trust; “Creative Management,” enhancing customer values and creating new technology that no one else can compete or imitate; and “Eco-friendly Management,” reducing energy consumption and CO2 emissions, and demonstrating responsibility for the planet and the next generations. Based on our new management philosophy, we will accomplish our vision of becoming one of the “Global Big 3, Top 3” steel company and “Creating Another Success Story.” I believe our dream will come true sooner with your continued support and encouragement. Going Green Securing Leadership WorldReginfo - be4dd6cf-8646-406d-b6b5-52345925e8de Management Performance Accomplished the largest sales revenue and net profit in our history In 2008, POSCO accomplished record-setting production of 34.7 million tons and sales of 33.52 million tons, on a consolidated basis. Strategic product sales reached 18.59 million tons, a 1.08 million-ton increase over 2007. The company posted record-breaking financial performances, on a consolidated basis, with revenue of KRW 41.79 trillion, operational profit of KRW 7.19 trillion and net profit of KRW 4.35 trillion. Total consolidated assets were at KRW 46.96 trillion, a 29.5% increase over 2007, owing to expanded investments in steel production and increased profit. EBITDA, an index of cash-generating capability, was KRW 9.55 trillion, significantly greater than the KRW 7.04 trillion in 2007. Expanding facilities to establish 41 million ton crude steel capacity and increasing investments in mine exploration In 2008, our most important investments were facility expansions and upgrades to achieve annual domestic production capacity of 41 million tons. We also focused on securing stable supply of required raw materials. By 2010, we will add 2 million tons to our steel-making capacity in Pohang Works with the construction of New Steel Making Plant, and in Gwangyang Works we will add 2 million tons of steel plate capacity with the construction of New Plate Mill, complete with its own Steel Making and Casting Mill. Also, we expanded facilities to increase production and sales of high value-added products. With the goal of raising self-sufficiency in raw materials to 30% by 2012, last year we acquired equity in an iron ore mine in Namisa, Brazil. By obtaining equity in the Macarthur Coal in Australia, we established a stable supply of high-quality PCI. In addition, we completed construction of a Ferro-nickel refinery in Gwangyang Works, with yearly capacity of 30,000 tons. This will help us secure our nickel requirements and build a vertical STS production line. By acquiring a stake in the manganese mine in South Africa, we have secured supply of 1 million tons a year beginning in 2010, thus stabilizing our access to the core raw material required for steel-making.