Seeking Only Low-risk Projects

GS E&C to go after projects with high added-value; GS Group sees no letup in investments to ensure future

GS Engineering & Construction Co. (GS E&C) announced that it has been awarded a project worth 411 million Singapore dollars and constitutes a joint operation with a local company. The project is to design and build a subway depot, which is sponsored by the Singapore Land Transport Authority.
The Singapore Land Transport Authority is scheduled to provide a 6-lane, 102km subway project worth about $23.1 billion in total. This is the first stage of the mammoth project to construct the depot, located in the terminal of downtown Line 2.
The project will be free of risks for receiving payments since it is government financed. It will contribute to an increase in annual revenues by 30 billion won for GS E&C.
GS E&C will expand its overseas business to cover civil engineering projects in Singapore. The company expects that all governments are interested in infrastructure projects in order to boost the growth of their economies. Consequently, GS E&C will grow further in Singapore through its close relationship with the government and its joint-venture companies. And these experiences will help GS E&C further secure extensive business in Singapore.
In 2008, GS E&C secured orders worth 12.23 trillion won after first exceeding 10 trillion won in 2007.
The company has a backlog of orders totaling 42.3 trillion won, including promised orders of 15.8 trillion won, which can sustain its business for more than six years.
Compared to last year, revenues increased by 14.2 percent to 6.86 trillion won, and operating profits increased by 7.9 percent to 476 billion won in 2008.
All in all, despite the hardships afflicting the construction industry, GS E&C has achieved solid growth.
GS E&C has set this year's management policy as‘Sustainable Management and Back to Basics.’
It is committed to actively meeting the challenges of the shrinking construction market, as a result of the global credit crunch, and taking the next leap.
To realize this, it is creating a management structure based on tracking cash flow, thus strengthening risk management and securing financial security.
It is also qualitatively changing its management structure by carrying out activities that increase cost competitiveness.
As part of its strategy to increase global competitiveness, it plans to invest in future growth industries such as gas plants, power plants and environmental facilities.
For 2009, conservative numbers are the rule with the target for orders being decreased by 17 percent to 10.2 trillion won, revenues and operating profit targets have also been decreased to 6.94 trillion won and 560 billion won respectively.
The reason for the conservative numbers are to enable the company to secure cash flow, which can be seen as GS E&C adopting sustainable internal growth instead of external competition.
With this in mind, GS E&C plans to actively pursue government contracts, reorganization of its housing portfolio, which is heavily centered on Metropolitan area reconstruction/redevelopment, and a focus on new foreign construction orders.
Until the market situation brightens, GS E&C plans to undertake intensive activities to overcome cash flow risks. In order to increase the efficiency of the use of its manpower, headquarters organizations will be slimmed and 20 percent of the headquarters staff will be transferred to work sites, executive pay will be cut by 20 percent and employee pay will be frozen.
Perks and other funding will also be cut in order to increase cost effectiveness.
To solve the PF burden and increase cash flow, various sales activities will be initiated to decrease the number of unsold apartments, while GS E&C's share of Seoul Expressway, in addition to some of its real estate holdings will be sold.
With these activities, GS E&C plans to actively counter the current global credit crunch and increase the sustainability of its management structure.
GS E&C will invest 200 billion won in SOC projects and waste treatment facilities and other environmentally-friendly facilities. The company will again focus on overseas construction projects, encouraged by overshooting the targeted number of projects by 1 trillion won to total 5 trillion won. The company will concentrate on emerging markets where many energy and environment-related projects are expected to increase substantially this year and seek opportunities to secure projects in the areas of plant, power generation and environment facilities, the traditional areas of its operations with high value-added portions. nw

President Hur Myung-soo of GS Engineering & Construction Co.