New ceo shakes up Hyundai Heavy

Hyundai Heavy Industries may be the world?s largest shipbuilder and a major force in manufacturing construction equipment and marine engines, but it remains an ailing conglomerate suffering from reckless expansion and losing money. Since March however, its new chief executive, Yu Kwan Hong, with a reputation as Korea Inc.’s top turnaround artist, has a mission to oversee a total remake of three Hyundai Heavy divisions that are losing money.

His greatest challenge will be the industrial plant division which builds power plants and oil refineries worldwide and last year posted a loss of $105 million. But even the core shipbuilding division, with its backlog of 218 newbuilding orders, makes Yu uneasy since its profit margin is just over 6%. “It’s far from what I would consider a No. 1 shipbuilder,” says the ceo.

Yu is wasting no time producing dramatic change. He has told his division heads to shed money-losing businesses and deliver profits within a year, or else resign. Yu, a quality-control specialist and production manager at Hyundai Heavy for 24 years, has already reorganized shipbuilding schedules from 2005 to 2007, squeezing in 18 additional orders for new container ships and oil tankers.

Previously Yu has made his mark by turning round Hyundai Heavy’s most troubled divisions, i.e. construction-equipment business, which he ran from August, 1999, to January, 2002, and then Hyundai Mipo Dockyard, the company’s ship repair affiliate, which he managed from February, 2002, to mid-March this year. Yu’s strategy is to force the company to build on its strengths with the goal of increasing profit margin to 10%, and rake in at least $10 billion in annual revenue, up from $6.8 billion last year, by 2007.

Yu’s greatest success to date was at Mipo Dockyard, which began losing money because of an ambitious plan to not only repair ships but also build them. Before he arrived, Mipo accepted high value orders to build cable-laying ships, drilling rigs, and other special-purpose vessels for which it lacked expertise. Now, besides repairing ships, Mipo concentrates on building one ship type, i.e. the handy-size petroleum product carrier. After posting $79.4 million in combined losses in 2001 and 2002, Mipo had a profit of $27.6 million last year. “It has become one of the most profitable shipbuilders in the world,” according to a shipbuilding analyst at Daewoo Securities. Mipo’s stock has soared more than fivefold in the past three years, to $14.90 a share.

If Yu succeeds in his new role, he’ll go a long way toward staving off the decline of shipbuilding and other heavy industries in Korea. With wages about 90% lower in neighboring China, shipyards in that country are winning orders for bulk carriers and tankers that otherwise might have gone to Korea. “I’m confident Korea will remain the top shipbuilding country for at least the next 15 years,” says Yu.