EXPANDING THE POSSIBLE

Transcription

1 EXPANDING THE POSSIBLE Hyundai Heavy Industries Annual Report 2012

2 EXPANDING THE POSSIBLE At Hyundai Heavy Industries, we have spent the past four decades redefining what is possible in shipbuilding and heavy manufacturing. Today, we are doing the same in an expanding portfolio of businesses as we enable customers around the globe to expand their own possibilities for sustainable growth.

3 Contents 24 BUSINESS OVERVIEW 08 Message from the CEO 70 CONSOLIDATED FINANCIAL STATEMENTS 12 THE possibilities Start here 64 CORPORATE RESPONSIBILITY MANAGEMENT OVERVIEW BUSINESS OVERVIEW CORPORATE RESPONSIBILITY CONSOLIDATED FINANCIAL STATEMENTS 04 Financial Highlights (Consolidated) 05 Share Performance 06 HHI at a Glance 08 Message from the CEO 10 Corporate Governance & Organization THE possibilities Start here 26 Shipbuilding 30 Offshore & Engineering 34 Industrial Plant & Engineering 38 Engine & Machinery 42 Electro Electric Systems 46 Construction Equipment 50 Green Energy 54 Refinery 58 Financial Services 62 Research & Development 66 Community Commitment 68 Environmental Commitment 72 Management s Discussion & Analysis 79 Independent Auditors Report 80 Consolidated Statements of Financial Position 82 Consolidated Statements of Comprehensive Income 83 Consolidated Statements of Changes in Equity 84 Consolidated Statements of Cash Flows Global Network 168 Affiliated Companies 14 More Sustainable 16 A Better Platform for Energy 18 More Powerful 20 More Valuable 22 More Secure

4 04-05 Financial Highlights (Consolidated) Share Performance Financial Stability Ratios. Liabilities-to-Equity Debt-to-Equity Dividends Per Share. Dividend Per Share (in KRW) Payout Ratio Dividend Yield in USD millions in KRW billions in KRW billions in KRW billions For the Year Sales 51, , , ,342.4 Gross Profit 4, , , ,493.0 Operating Income 1, , , ,604.2 Profit for the Year , , ,562.7 At Year-End Total Assets 46, , , ,853.9 Total Liabilities 28, , , ,831.0 Total Debt 13, , , ,844.4 Total Shareholders Equity 17, , , ,022.9 Financial Indicators Liabilities-to-Equity 162.9% 162.9% 169.6% 192.4% Debt-to-Equity 79.1% 79.1% 60.8% 61.4% EPS (in USD/KRW) USD ,823 46,337 75,808 EBITDA 2, , , ,397.9 ROA 2.1% 2.1% 5.6% 9.7% ROE 5.8% 5.8% 15.6% 29.1% Won amounts for FY2012 have been translated at KRW 1, per USD 1.00, the basic rate as of Dec. 31, EBITDA = Operating Income + Depreciation + Amortization Sales. in KRW billions 37, % 61.4% 53, % 60.8% 54,973.7 Total Assets. in KRW billions 46, % 79.1% , , , ,273.1 EPS. in KRW 75, , % 1.6% 46, % 1.5% 17, % 1.0% The Korean stock market rallied in the first quarter of 2012, boosting the KOSPI index above 2,000 points for the first time in seven months thanks to growing global liquidity as fears of a new Eurozone financial crisis receded. The second quarter brought market volatility with the disclosure of major trading losses by JPMorgan and re-kindled Eurozone concerns following rumors of a Greek exit from the euro. In the third quarter, the KOSPI climbed back to the 2,000-point level on growing investor appetite for higher-risk assets and strong demand from foreign investors on favorable political and economic news. In the fourth quarter, the market slumped as investor sentiment soured on bad news from the Eurozone and concerns over the stalled fiscal cliff negotiations in the US. The KOSPI rallied at year end, closing up 9% at 1, points on the strength of continued net buying by foreign investors, the year-end effect, and other positive factors HHI Share Performance vs. KOSPI KOSPI HHI 160% 140% 120% 100% 80% 60% 40% 20% 0% Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Stock Facts 2010 Face Value (in KRW) 5,000 5,000 5,000 Number of Shares Issued 76,000,000 76,000,000 76,000,000 Total Market Capitalization (in KRW billions) 18,392 19,532 33,668 Share Price - High Close (in KRW) 345, , ,500 - Low Close (in KRW) 195, , ,000 - Year Close (in KRW) 242, , ,000 Foreign Ownership 19.3% 16.9% 20.2% Dividend Per Share (in KRW) 2,500 4,000 7,000 Payout Ratio 13.9% 12.6% 15.1% Our share price hit a year-high of KRW 345,000 on March 2 on active buying of shipbuilding shares by pension funds and foreign investors amid expectations of global economic recovery and new orders in the offshore plant sector. In the months that followed, continued uncertainty in the Eurozone sent the shipbuilding sector tumbling. In the second half of the year, our share price steadily declined as our liquidity issues became apparent, underperforming sector shares fell out of favor with investors, and our order performance lagged behind our peers. The sector rallied late in the year as investors sensed that shares had overcorrected and bottomed out. Our shares closed the year down 6% at KRW 242, HHI Share Price & Foreign Ownership Share Price (R) Foreign Ownership (L) 25% 20% 15% 10% 5% 0% 0 Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec in KRW 500, , , , ,000 Shareholder Structure As of Dec. 31, 2012 Shareholder Ownership (%) Chung Mong-joon Hyundai Mipo Dockyard 7.98 KCC 3.12 National Pension Service 5.62 Hyundai Motor Company 2.88 Asan Foundation 2.53 POSCO 1.94 Asan Nanum Foundation 0.65 Treasury Shares Others 45.77

5 06-07 HHI at a Glance Electro Electric Systems Since 1977, we have established ourselves as a world-class manufacturer of electrical solutions for power generation, transmission, and distribution that are second to none. Today, our global production network includes plants in China, Bulgaria, the United States, and Russia as we position ourselves to meet the growing needs of markets around the globe. Major Products Transformers Gas Insulated Switchgear Switchgear Low- and Medium-Voltage Circuit Breakers Rotating Machinery Integrated Control & Monitoring Systems Power Electronics Marine Electrical Equipment 3, , , Sales (Consolidated) in KRW billions 5.2% Portion of 2012 Sales Shipbuilding Since 1983, we have held the distinction of being the world s No. 1 shipbuilder. We and our shipbuilding subsidiaries have delivered approximately 2,800 vessels to date. Today, the 18 dry docks ㅡ ten at HHI, six at Hyundai Mipo Dockyard (including two at Hyundai- Vinashin Shipyard Co., Ltd.), two at Hyundai Samho Heavy Industries ㅡ build vessels for the shipping, energy transport and exploration, and naval markets. Together with our shipbuilding subsidiaries, we continue to chart the future of the global shipbuilding industry. Major Products VLCCs, Tankers, Product Carriers Containerships, Bulk Carriers, OBO Carriers LNG Carriers, LPG Carriers, FSRUs Drillships Pure Car Carriers, Ro-Ro Ships, Ro-Pax Ships Submarines, Destroyers, Frigates 15, , , Sales (Consolidated) in KRW billions 32.4% Portion of 2012 Sales Construction Equipment Since 1985, we have been delivering quality construction equipment and industrial vehicles to customers around the world. Today, our stateof-the-art automated manufacturing facilities in Korea, China, India and Brazil produce equipment that is sold and serviced through a global network of over 521 dealers in some 137 countries worldwide. Major Products Excavators Wheel Loaders Forklifts Skid Loaders 3, , , Sales (Consolidated) in KRW billions 6.9% Portion of 2012 Sales Offshore & Engineering Green Energy Since 1976, we have handled over 170 projects including 103 turnkey EPIC/EPC contracts in the fields of oil and gas field development and production facilities for more than 30 international clients. Boasting the 1-million-ton capacity H-Dock with two 1,600-ton gantry cranes, our Ulsan yard facilities greatly enhance our ability to win and build the world s largest floating offshore units. Our new Onsan yard will also help meet growing module demand for these projects. Major Products Floating Units: FPSOs, FPUs, TLPs, Semi Submersible Units Fixed Platforms: Topsides, Jackets & Piles, Jack-ups, Modules & Quarters Pipelines & Subsea Facilities: Subsea Pipelines Offshore Installations: Platforms, Pipelines Onshore Installations: Oil & Gas Production and Processing Plants, Refineries, Tank Farms 3, , , Sales (Consolidated) in KRW billions 8.0% Portion of 2012 Sales Since 2005, we have been developing renewable energy solutions that tap the power of the wind, sun, and ocean to make energy greener. Today, we are an emerging player in global solar and wind power markets with state-of-the-art manufacturing capabilities in Korea and China and projects installed or underway in Asia, Europe, and North America. Major Products Wind Power Systems Solar Power Systems Sales (Consolidated) in KRW billions 0.6% Portion of 2012 Sales Industrial Plant & Engineering Since 1975, we have delivered a wide range of power, desalination, and process plant facilities to customers around the globe. Today, we are a global EPC contractor executing some of the industry s largest power and oil and gas projects to date in the Middle East and Africa regions, including the Riyadh PP11 1,756 MW combinedcycle power plant in Riyadh, Saudi Arabia. Major Products Power Plants: Combined-Cycle, Cogeneration, and Thermal Power Plants Process Plants: Oil & Gas, Refinery, Tank Farm, GTL, and LNG Facilities 2, , , Sales (Consolidated) in KRW billions 2.6% Portion of 2012 Sales Refinery Since 1964, Hyundai Oilbank has helped meet Korea s petroleum and petrochemical needs. An affiliate since 2010, the company now has a daily refining capacity of 390,000 barrels and an industry-leading 34.4% upgrading ratio, providing quality products to consumers through over 2,300 gas stations nationwide as well as manufacturers at home and abroad. Major Products Petroleum: LPG, Gasoline, Kerosene, Jet Fuel, Ultra-Low-Sulfur Diesel, Fuel Oil Petrochemicals: Propylene, Alkylate, BTX, Naphtha 6, , , Sales (Consolidated) in KRW billions 39.1% Portion of 2012 Sales Engine & Machinery Financial Services Since 1979, we have established ourselves as the world s No. 1 producer of two-stroke diesel engines with over 120 million bhp produced to date. Today, we produce state-of-the-art engines for the marine and power generation industries as well as a wide range of equipment for the shipbuilding, steelmaking, automobile, semiconductor, and other industries. Major Products Two-Stroke Diesel Engines Four-Stroke HiMSEN Engines Marine Equipment Diesel Power Plants Industrial & Marine Pumps Ballast Water Treatment Systems Side Thrusters, Compressors Robots, Press, Conveyor Systems 1, , , Sales (Consolidated) in KRW billions 3.7% Portion of 2012 Sales Since 1989, HI Investment & Securities and HI Asset Management have delivered quality brokerage and asset management services to Korean investors. Affiliates since 2008, the firms continue to diversify their portfolios into growth areas such as the pension and over-the-counter derivatives markets, focusing on delivering quality products and services to help investors profit in uncertain times. Major Products Securities Brokerage Asset Management Futures Corporate Finance Leasing Sales (Consolidated) in KRW billions 1.2% Portion of 2012 Sales

6 08-09 Message from the CEO Dear Valued Stakeholder, The global economy experienced rough sailing in 2012 as the Eurozone financial crisis continued to unfold, the US economic recovery stalled, and growth in China and other developing markets slowed. These external factors had a significant impact on our performance in our 40th year in business as we fell short of our targets. Although our performance fell short of our expectations, we seized the opportunity to lay a solid foundation for growth in many areas amid the challenging circumstances. We became the world s first shipbuilder to pass the 100-million deadweight ton delivery milestone. We booked a USD 3.2 billion power project order in Saudi Arabia, our largest order to date. We raised our record in the Guinness World Records for the heaviest object lifted on land during the delivery of a 23,600-ton gas compression platform to Woodside Energy of Australia. We also completed our Onsan yard, providing a much-needed capacity boost for our offshore facilities business. We had a number of notable accomplishments in the technical and partnership fields as well. In the technical field, we demonstrated our engineering leadership with the development of proprietary LNG cargo tank and LNG-FPSO designs. We also developed and successfully demonstrated the shipbuilding industry s first dual-fuel marine engine package. In the partnership field, we joined forces with Cummins of the US to establish a joint venture to build mid-size engines for construction equipment. We also established a joint venture with Magna E-Cell Systems of Canada to develop lithium-ion battery cells and battery packs, laying the foundation for our entrance into the electric and hybrid vehicle battery market. As we look ahead to 2013, the prospects for economic recovery in the developed world remain unclear. As for the developing world, the prime driver of global economic growth in recent years, the growth momentum is expected to slow. If the global economy is unable to break out of its current low-growth slump, our business environment will become even more challenging than it already is. The following four strategic directions will guide us as we strive to meet ambitious targets and steadily grow our corporate value. Our first focus will be on strengthening our core capabilities to prepare for the increasingly challenging business environment. We will sharpen our cost competitiveness by improving our engineering, building methods, and productivity. We will also evaluate our organization, personnel, investments, and expenses from the ground up as we streamline and optimize every aspect of our operations. Our second focus will be on putting in place a crisis management system capable of immediately responding to growing economic uncertainty. We will build a flexible production system capable of quickly reacting to changes in the environment and strengthen our competitiveness by improving our business portfolio, division of work, personnel structure, and facilities. Sharpening our production efficiency and leadership in technical development will also be priorities. Our third focus will be on executing a business strategy that differentiates us from the competition and pursuing a selectand-focus strategy to strengthen our core capabilities. We will thoroughly analyze our strengths and weaknesses, strengthening the former and remedying the latter to put in place a foundation that will enable us to maintain our competitive position, regardless of the environment. We will also step up the pace of technical and process innovation to break into new markets and develop new products. Our fourth and final focus will be on workplace safety and labormanagement cooperation as we work together to overcome the challenges that lie ahead. We will continue to make every effort to foster a safe and pleasant work environment and accidentfree workplace. In this way, we will nurture the ultimate source of greater corporate value a mature labor culture of co-existence and co-prosperity based on trust and cooperation. While 2013 is expected to bring numerous challenges, we have a history of overcoming the unexpected with determination and drive, emerging stronger and more mature as we have turned each challenge into an opportunity. We invite you to join us as we begin our fifth decade in business by charting a new course for greater, more profitable growth in the coming year and beyond. Lee Jai-seong President & CEO

7 10-11 Corporate Governance & Organization Organization Chart Board of Directors Chief Executive Officer Audit Committee About the Board of Directors The Hyundai Heavy Industries board is composed of seven directors, four of which are outside directors. Collectively, the directors assume ultimate responsibility for decisions regarding corporate affairs and the financial well-being of shareholders. All board appointments are made pursuant to the Articles of Incorporation, including due consideration of each individual s professional experience and expertise in fields such as law, economics, finance, and accounting. The board meets to discuss and resolve corporate matters. Its responsibilities include deciding on material matters as stipulated in relevant by-laws and the Articles of Incorporation, dealing with issues delegated to it at the annual general shareholders meeting, and addressing issues related to the basic direction and execution of company operations. The board also has the authority to appoint the CEO and board chair as well as conduct oversight of its members and company management. The board held a total of 12 meetings in Audit Committee The Audit Committee is a standing committee composed of three outside directors. Its responsibilities include (1) deciding on matters related to shareholders meetings such as the calling of interim shareholders meetings and setting forth its views on the agenda and the documents to be presented; (2) conducting oversight of the board and its members, producing independent annual audits, and supervising the financial reporting process; and (3) addressing matters relating to audits, including contracts with independent auditors and the evaluation of their qualifications, eligibility, and performance. The committee held a total of five meetings in Outside Director Nominating Committee The Outside Director Nominating Committee is a standing committee responsible for nominating qualified individuals to serve as outside directors on the board. The committee consists of one inside and two outside directors. Shipbuilding Division Board of Directors Inside Directors Outside Directors Offshore & Engineering Division Lee Jai-seong President & CEO Pyun Ho-bum Vice-President, Deloitte Anjin LLC PhD, Business Admin., Sungkyunkwan University Industrial Plant & Engineering Division Kim Oi-hyun President & COO Lee Chol Engine & Machinery Division Overseas Offices Professor, Business Admin., Sogang University PhD, Business Admin., University of Texas at Austin Electro Electric Systems Division Seoul Office (Corporate Planning, Finance, Internal Audit, Legal Affairs) Choe Byeong-ku President & COO Ju Soon-sik Juridical counselor of Yulchon LLC PhD, Economics., University of Hawaii Construction Equipment Division Administration & Assistance Noh Young-bo Green Energy Division Corporate Technology Institute BAE, KIM & LEE LLC Representative Partner LLM, Georgetown University Audit Committee Pyun Ho-bum Ju Soon-sik Noh Young-bo Outside Director Nominating Committee Lee Jai-seong Lee Chol Noh Young-bo Executive Directors Lee Jai-seong President & CEO Kim Oi-hyun President & COO of Shipbuilding Division Choe Byeong-ku President & COO of Construction Equipment Division Kim Jong-do Senior Executive Vice President & COO of Offshore & Engineering Division Chun In-soo Senior Executive Vice President & COO of Industrial Plant & Engineering Division Kim Jeong-hwan Senior Executive Vice President & COO of Engine & Machinery Division Kim Hwan-goo Senior Executive Vice President & COO of Electro Electric Systems Division Kim Sung-rak Senior Vice President & COO of Green Energy Division Lee Choong-dong Senior Executive Vice President & COO of Corporate Technology Institute Han Sang-ick Senior Executive Vice President & COO of Administration & Assistance Division Kim Jee-won Senior Executive Vice President & CFO

8 12-13 History has shown that the most successful companies are the ones that consistently turn challenges into opportunities. At Hyundai Heavy Industries, we are looking over the horizon at the possibilities in our expanding business portfolio as we chart a bold new course for our fifth decade of business. The Possibilities Start Here

9 14-15 At Hyundai Heavy Industries, we believe that simply being the world s largest shipbuilder isn t enough. That s why we are focusing on bringing to market a new generation of technologies that will make tomorrow s ships greener, smarter, and safer. We can make shipbuilding more sustainable

10 16-17 At Hyundai Heavy Industries, we believe that the oceans hold resources that we have only begun to tap. That s why we are developing and delivering offshore facilities that will help unlock the vast reserves of energy they hold more productively and profitably. We can make a better platform for energy

11 18-19 At Hyundai Heavy Industries, we believe that renewables have a powerful role to play in the future of energy. That s why we are developing the advanced solar and wind technologies that will harness the power of nature more efficiently, reliably, and profitably. We can make nature more powerful

12 20-21 At Hyundai Heavy Industries, we believe that quality growth depends on making the most of your resources. That s why we are continually expanding and upgrading our refinery facilities to make greener value-added petroleum and petrochemicals for Korea and the world. We can make oil more valuable

13 22-23 At Hyundai Heavy Industries, we believe that managing money well is just as important as earning it. That s why we are delivering innovative financial products, services, and expertise to help individuals and businesses invest in a more secure and prosperous future. We can make tomorrow more secure

14 24-25 Business Overview We are committed to expanding the possible for a more prosperous future. 26 Shipbuilding 30 Offshore & Engineering 34 Industrial Plant & Engineering 38 Engine & Machinery 42 Electro Electric Systems 46 Construction Equipment 50 Green Energy 54 Refinery 58 Financial Services 62 Research & Development

15 26-27 Basle Express Containership Delivery Delivered to Hapag Lloyd of Germany in November 2012, this 13,200 TEU vessel features a number of eco-friendly technologies, including an electronically controlled engine for maximum fuel efficiency, a ballast water treatment system, and support for alternative marine power to help reduce in-port emissions.

16 28-29 Business Overview Shipbuilding At Hyundai Heavy Industries, we re known for being the world s No. 1 shipbuilder. It s an accomplishment we re extremely proud of. And one that drives us to create the industry s largest, safest, and greenest ships as we help deliver a better life Order Breakdown. Orders. Backlog. by value in USD millions Delivery basis, in USD millions LNG Carriers + FSRU 27% Containerships 14% Drillships 11% HHI HSHI HMD HHI HSHI HMD 39,598 Semi-Submersible Rigs 11% Pure Care & Truck Carriers 6% LPG Carriers 5% Tankers 5% Ro-Ro Carriers 5% Special & Naval 5% Bulk Carriers 4% Others 2% ,306 4,061 1,216 3,029 16,685 10,905 3,769 2, ,615 6,143 2,508 2, ,742 9,469 9, ,618 21,870 8,080 7,668 34,404 20,470 6,609 7, Brightoil Galaxy VLCC delivery Delivered to Brightoil Petroleum of Hong Kong in November 2012, this 318,000-dwt very-large crude carrier is designed to transport three different kinds of cargo oil without contamination and is also equipped with a state-of-the-art navigation system Overview The global shipbuilding industry continued to face rough sailing in As the unfolding Eurozone financial crisis and slowing Chinese economy took their toll on global economic growth, the shipping industry struggled with an oversupply of tonnage and falling shipping rates. These factors, combined with the ongoing credit crunch in the shipbuilding industry, all contributed to sharply lower demand for newbuild vessels. According to Clarkson Research Services, the industry booked orders for approximately 36.5 million gross tons (mgt) in 2012, about 40% less than the 59.1 mgt ordered in Orders for tankers, bulk carriers, containerships, and other commercial vessels plummeted 60%, while orders for drillships, LNG and LPG carriers, and other specialized vessels dropped 14%. The inevitable result was intensified competition between shipyards for business, putting further downward pressure on vessel prices Review The sharp downturn of the global shipping and shipbuilding industries significantly impacted our performance in Under the circumstances, we and our shipbuilding subsidiaries had a respectable year, booking orders for 125 vessels worth USD 11.6 billion, and delivering 245 vessels worth USD 27.8 billion. Given the challenging market situation, our sales strategy focused on high-tech, high-value-added vessels such as LNG carriers, LNG floating storage and regasification units (FSRU), drillships, semi-submersible rigs, and ultra-large containerships. Notably, we completed global sweep of orders for ultra-large containerships exceeding 10,000 TEU, affirming our worldleading technology and competitiveness in the segment. We also responded to fast-growing demand in the semi-submersible rig market by re-entering the segment over a decade after we delivered our eighth rig in Outlook The sluggish global economic recovery, combined with the current tonnage oversupply situation and tight financing market, is expected to prolong the current shipbuilding industry downturn for the foreseeable future. While 2013 is expected to be just as challenging as 2012, market interest and demand for eco-friendly vessels looks to steadily grow due to high level fuel costs and increasingly strict environmental regulations. Looking at market opportunities, demand for tankers, bulk carriers, containerships, and other commercial vessels is projected to be limited as the increase in new tonnage continues to outstrip cargo volume growth. The one possible exception will be highly-efficient next-generation containerships, where attractive pricing is expected to spur demand, boosting order tonnage slightly over Demand for specialized vessels such as LNG carriers and drillships is also expected to be a bright spot, driven by rising demand for natural gas and brisk investment in offshore oil and gas field development. Overall, given the significant volume of ordered tonnage that remains unchartered, we expect the newbuilding market to be primarily driven by real rather than speculative demand in the coming year. Our first and foremost priority in 2013 will be on securing the order volume necessary to keep our shipbuilding operations efficiently at work. We and our shipbuilding subsidiaries are targeting orders of USD 15.5 billion. We will aggressively respond to the changing market, focusing heavily on winning LNG carriers, drillships, and other specialized vessels. At the same time, we will continue to fully leverage our competitive edge to win commercial vessel orders when opportunities arise. Our ongoing corporate-wide cost-reduction initiatives will aid us in cutting manufacturing costs as we expand investment in R&D to improve the performance and eco and energy efficiency of our ships and upgrade our customer service to further strengthen our position as the global market leader. Glovis Challenge PCTC delivery Delivered to Glovis of Korea in April 2012, this 6,500-vehicle pure car and truck carrier features a number of design upgrades for enhanced performance. One of these upgrades is that the propeller size has been maximized to enhance energy efficiency, making it the greenest ship to date of its type.

17 30-31 Usan FPSO Begins Production Delivered to Total E&P Nigeria in April 2011, this floating production, storage, and offloading vessel began production in Nigeria s Usan field in February We handled all aspects of this major EPC project featuring a hull weight of 83,500 tons and topsides weighing over 30,500 tons. The 320 m long, 61 m wide, and 32 m high vessel can store up to 2 million barrels of crude oil, while its topsides have respective crude oil and gas processing capacities of 160,000 barrels and 5 million standard cubic meters per day.

18 32-33 Business Overview Offshore & Engineering At Hyundai Heavy Industries, we re known for building some of the world s largest and most advanced offshore facilities. In markets from Africa to Oceania, we re leveraging our EPCI capabilities to deliver the next-generation floating units and platforms Order Breakdown. Parent Basis, by Value Orders. Parent basis, in USD millions Fixed Platforms 78% Floating Units 20% Pipelines & Others 2% 4, , ,072 Shwe gas platform sail-out In November 2012, the Shwe gas production and processing platform sailed for Myanmar where it will be installed some 70 km off the west coast in the Bay of Bengal. Ordered in February 2010, the 40,000-ton offshore platform is the centerpiece of a USD 1.4 billion EPC project that includes installation of 114 km of subsea pipeline and an onshore terminal Overview Despite ongoing economic difficulties in Europe and the US, international oil prices remained strong in 2012 as global demand continued to grow, primarily driven by China s growing infrastructure and power consumption. These high oil prices in turn fueled investment in global exploration and production. The year saw major offshore platform orders tendered in the Middle East and North Sea as well as deepwater production units in Brazil and Africa. Oil majors and state-owned oil companies continued to make major exploration investments in Africa and other relatively undeveloped regions Review We booked orders of USD 2.07 billion, representing 40% of our respective targets for the year. Although the delayed tender of a number of major projects prevented us from achieving our order target, there were a number of promising developments during the year. We won orders for projects in Canada, Alaska, and the US Gulf of Mexico, boding well for future business prospects in the Americas. We also made inroads in several new markets, winning orders for a gas compression platform in Malaysia and a spar floating gas platform in Norway. Our on-time, on-budget delivery of major offshore projects such as the Usan FPSO to Nigeria and the Shwe gas platform to Myanmar in recent years has burnished our reputation in the industry. In 2012, we continued to enhance our ability to take on turnkey EPC projects with the opening of a new offshore engineering center in Seoul in July and the official completion of our new Onsan yard capable of building over 50,000 metric tons of modules a year in November Outlook The International Energy Agency has forecast that average global oil demand will grow by 930,000 barrels to 90.8 million barrels per day in 2013 as demand from China, the world s No. 2 consumer of oil, continues to rise. Non-OPEC oil production is also expected to surpass OPEC output. With economic growth in developing markets keeping global energy demand on the rise, the increasingly challenging environment for oil exploration will put upward pressure on oil prices, driving investment in offshore exploration and development. From a regional standpoint, gas development in Southeast Asia and Australia is expected to boost orders for FLNG and onshore LNG module projects. Orders for oil and gas production platforms for projects in the North Sea and Middle East are also expected to steadily rise. In 2013, we aim to win major floating production unit and fixed platform projects around the globe from the Middle East, Australia, and Sakhalin to West Africa and the North Sea. We will continue to tailor our marketing strategy by customer as well as invest locally to set up local production yards to meet local content requirements. We will invest in a 10,000-ton floating crane to bolster our production capabilities. We will also leverage our installation and production capabilities to win EPIC projects as well as focus on sharpening our competitiveness in the subsea pipeline and production platform installation fields. Looking ahead, we continue to explore ways to effectively respond to the changing offshore industry. We aim to drive growth by building on our experience in some of the industry s most challenging projects and partnering closely with key suppliers to meet customer requirements. We will also continue to expand our business portfolio by developing our technical and construction capabilities in promising growth fields such as FLNG and FPSO as well as subsea pipelines. H-Dock builds world firsts The industry s first dry dock dedicated to offshore projects, H-Dock measures 490 m long by 115 m wide by 13.5 m deep and is equipped with two 1,600-ton gantry cranes. The dock is currently simultaneously building the world s largest cylindrical FPSO to date with a circumference of 112 m, height of 75 m, and weight of 52,000 tons and the world s largest semi-submersible heavy-lift vessel with a capacity of 110,000 dwt.

19 34-35 Riyadh PP11 Independent Power Project Underway We are on track to complete this USD 1.6 billion EPC project in Saudi Arabia in Ordered in 2010 by the Dhuruma Electricity Company, the 1,756 MW gas-fired combined-cycle plant located west of the capital of Riyadh will help meet the kingdom s long-term power requirements.

20 36-37 Business Overview Industrial Plant & Engineering At Hyundai Heavy Industries, we re known for engineering and constructing some of the world s most advanced industrial plant facilities. Our world-class EPC capabilities have made us a key player in the Middle East and Africa over the years Order Breakdown. Parent Basis, by Value Orders. Parent basis, in USD millions 4,077 Power Plants 86% Others 8% Oil & Gas Plants 6% 2,010 1, Hyundai Oilbank #2 BTX project completed In November 2012, we officially completed construction of this EPC project for subsidiary Hyundai Oilbank five months ahead of schedule. The plant is capable of producing 915,000 tons of petrochemical products from mixed xylene feedstocks annually, including 800,000 tons of paraxylene and 115,000 tons of benzene Overview Although power plant orders were impacted by political instability and project tender delays in certain Middle East markets, continued strong oil prices and demand for industrial power kept the global tender market active. With the primary exceptions of Malaysia, Indonesia, and Thailand, most projects in Southeast Asia failed to contract as scheduled. In Africa, tender activity focused primarily on small-scale power projects. In the gas and oil plant sector, large-scale petrochemical projects in Saudi Arabia and the UAE were tendered on schedule. However, the emergence of unconventional gas in North America slowed the momentum of new LNG projects in the Middle East and Africa Review We booked orders of USD 4.08 billion in 2012, representing 82% of our respective target for the year. Major project wins for the year included the USD 3.2 billion 2,640 MW Jeddah South thermal power project, the USD 300 million Tihama Cogeneration Stage II project, and the USD 300 million Jazan Refinery Package #2 project, all in Saudi Arabia. We also won Phase II of the ITER toroidal field coil structure project and the Hanju CFBC boiler project in Korea. Major project completions included the Al Dur IWPP project in Bahrain featuring a 1,250 MW power plant and 48 MIGD desalination plant. ITER equipment production launched In 2012, we launched production of a number of components for the ITER international nuclear fusion research and engineering project located in Cadarache in the south of France. We will produce 2 of the 9 sectors that will form the vacuum vessel and 35 of the 53 ports that will connect it to the low-temperature vessels for delivery through the end of We will also produce 10 of the 19 toroidal field coil structures ordered in 2012 for delivery in fall We continued to sharpen our competitiveness in 2012 by focusing on our global operational capabilities. We boosted our sales force and invested in our engineering and quality control teams in China. We established construction subsidiary Hyundai Arabia in Saudi Arabia to expand our presence in that key market. We also continued construction of a fabrication yard in Nigeria that will be our first production base in the Africa region Outlook Bolstered by stable oil prices, the global industrial plant market is forecast to continue to grow in In the power plant sector, GCC nations such as Saudi Arabia, Kuwait, and the UAE are expected to push forward with national development projects with their growing petrodollar reserves. In Asia, major project tenders are expected to move forward in Vietnam as well as Pakistan and Bangladesh. In Africa, Nigeria has announced ambitious plans to invest USD 100 billion through 2020 to expand its power generation capacity by a factor of ten to 40 GW. In our home market of Korea, intensifying competition in a sluggish construction market will accelerate the industry s advance into new markets in Southeast Asia, Latin America, and Africa. In the oil and gas plant sector, a number of major projects are projected to come up for tender in the Middle East, with Saudi Arabia and Kuwait leading the way. In North America, growing investment in shale gas and oil sands development as well as LNG development in Canada is expected to provide a boost to the modular LNG processing facility market. Resource rich markets such as Kazakhstan and Venezuela are expected to tender projects to expand oil and gas production and refining capacity, while growing natural gas development in Australia, Canada, Mozambique will drive orders for LNG plants in those markets. In the plant equipment sector, tenders for residue fluidized catalytic cracking (RFCC) reactors and other specialized equipment are expected to pick up as major refinery and petrochemical complex projects move forward in Russia, the Middle East, and Southeast Asia. Orders for superconductor equipment related to the ITER nuclear fusion research project are expected to be tendered in the first half of the year. The balanceof-plant order for the Shin-Kori 5 and 6 nuclear project in Korea is also scheduled for tender during the year. We believe that the market opportunities mentioned above will provide us with a solid platform for growth. While the Middle East remains a key focus, we will continue to actively diversify into new markets. In the power plant sector, we will pursue growth in the combined-cycle and oil-fired power plant markets as well as new sectors such as solar and integrated-gas combinedcycle power. In the oil and gas plant sector, we are targeting projects from oil majors, collaborating with leading engineering companies to expand our tender opportunities. In the plant equipment sector, we are targeting equipment package orders for major refinery and petrochemical complex projects in Russia. We will also be pursuing a number of specialized equipment orders for the ITER project as well as expanding our boiler and heat-recovery steam generator businesses.

21 38-39 HiMSEN Engines Since their development back in 2000, HiMSEN four-stroke engines have earned a reputation as one of the top brands in the market. It took just under a decade from the time our first HiMSEN rolled off the assembly line in September 2001 to the 5,000th unit on February 10, We finished 2012 with a cumulative total of 7,000 units representing approximately 16.3 million bhp.

22 40-41 Business Overview Engine & Machinery At Hyundai Heavy Industries, we re known for building some of the world s most powerful engines and advanced machinery. From ships to power plants, we deliver the equipment that empowers industries and economies to grow as we help build a more productive future Order Breakdown. Orders. Parent Basis, by Value Parent basis, in USD millions 3,176 Marine Engines 78% Robotic Systems & Others 10% Engine Power Plant 8% Hydraulic Machinery 4% 2, ,858 Industry s first dual-fuel marine engine package demonstrated On November 9, 2012, we demonstrated the industry s first dual-fuel engine package featuring our ME-GI two-stroke engine, HiMSEN dual-fuel four-stroke engine, and Hi-GAS fuel gas supply system. Designed for LNG carriers, the package can also be used for crude carriers, containerships, and other commercial vessels, providing shipowners with a complete solution that meets increasingly stringent environmental standards Overview The two-stroke marine engine market faced an order drought as global shipbuilding orders shrank for a second straight year. This trend was most evident in China, where financially-strapped local shipbuilders sharply reduced engine orders due to a lack of ship orders. This same dynamic intensified competition, pushing engine prices lower and worsening profitability. In the engine power plant market, the majority of projects in the Middle East were either postponed or delayed with the exception of natural gas-fired plants. While demand for hydraulic equipment was down, demand for industrial robots continued to grow, driven by rising investment in manufacturing by automakers and steelmakers Review Despite challenging circumstances in the shipbuilding market, we booked orders of USD 1.86 billion in We expanded our lead in the two-stroke marine engine market with a 35% market share. We produced 355 two-stroke engines totaling over 11.5 million bhp, setting a new industry record as we passed the 120 million bhp cumulative production milestone. We produced 964 fourstroke engines totaling 2.9 million bhp, pushing our cumulative total to over 7,000 units since we shipped our first HiMSEN engine in We also produced over 3,000 industrial robots during the year. Our engine power plant and hydraulic machinery businesses both fell short of order targets due to ongoing project finance issues in the Middle East. Key orders for the year included a 100 MW packaged power station project in Angola and our first air compressor order for a water system pressurization project in Masan, Korea Outlook The shipbuilding industry is forecast to experience a sluggish recovery in 2013, creating rising demand for high-efficiency, ecofriendly gas and dual-fuel marine engines. However, structural industry overcapacity ensures that competition will intensify, creating downward pressure on engine prices and profitability. Opportunities for growth in the two-stroke marine engine market are likely to be limited due to rising local production capacity and stricter import regulations in China and the current focus on specialized ships at major Korean shipyards. The outlook is a bit brighter in other markets. The engine power plant market is forecast to pick up, driven by economic growth in Middle East markets as well as growing demand in the combined-cycle power plant market driven by the shale gas boom and rising demand for small-scale, short lead time power projects. The hydraulic machinery market is also expected to pick up with rising demand for air compressors and industrial pumps. The industrial robot market is likewise expected to expand with growing capex investment by global automakers and clean-room manufacturing in China. In 2013, we are targeting orders of USD 3.10 billion as we aim to secure a solid two-year order backlog. We plan to maintain a 35% or higher share of the global two-stroke marine engine market as we deliver 290 engines totaling 10.0 million bhp. We also aim to deliver 950 four-stroke engines and over 4,000 industrial robots. We will continue to focus on our most-competitive businesses two-stroke marine engines and packaged power stations as we aim to make automobile and clean-room robots a larger part of our order mix. We aim to grow sales of our latest marine engine developments, including high-performance HiMSEN engines for drillships and other specialized ships as well as the industry s 1,000th PPS shipped On July 12, 2012, we marked the milestone shipment of our 1,000th packaged power station. Since shipping our first PPS to the Dominican Republic in 2001, we have gone on to supply systems worldwide primarily to customers in developing markets. first dual-fuel solution for LNG carriers featuring ME-GI twostroke dual-fuel engines, the Hi-GAS fuel gas supply system, and HiMSEN DF four-stroke engines we successfully demonstrated in November We also plan to expand our business portfolio in the machinery field, focusing on hydraulic machinery, air compressors, ballast water treatment systems, industrial and clean-room robots, conveyor systems, and presses. The price, delivery, and quality advantage our integrated production capabilities give us will be instrumental in expanding our customer base in these and other fields going forward. Industry s first Tier III EGR engine demonstrated On October 9, 2012, we demonstrated the industry s first two-stroke marine engine to feature an exhaust gas recirculation system. The system recirculates a portion of the engine exhaust gas into the combustion chamber, reducing NOx emissions by over 80% compared to standard engines.

23 kv Shunt Reactors Achieve Top-5 Market Share Our shunt reactors captured 6.4% of the global market in the 345 kv-and-up category and earned World Class Product of Korea 2012 recognition from Korea s Ministry of Knowledge Economy for achieving a top-5 market share in their segment.

24 44-45 Business Overview Electro Electric Systems At Hyundai Heavy Industries, we re known for building some of the world s most advanced power transmission and distribution equipment. Our gas-insulated switchgear technology is key to delivering ultra-high-voltage solutions that will help bring more power to life Order Breakdown. Orders. Parent Basis, by Value Parent basis, in USD millions Transformers 26% 3,034 Rotating Machinery 24% Gas Insulated Switchgear 21% Switchgear 18% Others 11% , ,620 kw high-voltage induction motor shipments begin We developed and began shipping this 5,620 kw (at 60 Hz, 13.2 kv, 22 pole) high-voltage induction motor measuring 5 m long, 5 m tall, 4 m wide, and weighing 58 tons, the largest produced to date in Korea Overview Power equipment investment in the US market slowed due to the postponement of certain government-funded projects during the presidential election year. In Europe, the ongoing Eurozone financial crisis continued to shrink or delay investment, prompting regional EPC contractors to expand their focus to other regions. In the Middle East, competition heated up as power equipment tender volume increased. Qatar also tendered orders as part of infrastructure upgrades for the upcoming 2022 FIFA World Cup. In Asia, the slumping global shipbuilding industry led to lower demand for marine generators, particularly from Japanese shipyards. In Africa, continued political unrest led to the delay of tenders for scheduled power generation and transmission projects Review We booked orders of USD 2.32 billion in 2012, representing 62% of our respective target for the year. While challenging market conditions in Europe and North America anti-dumping sanctions placed on Korean transformer makers had a significant negative impact on orders, robust investment in power and general infrastructure in the Middle East helped limit the overall order decline to 11.7%. While transformer and gas insulated switchgear orders fell 27% to USD 960 million and rotating machinery orders declined 9% to USD 547 million, switchgear and others orders rose 14% to USD 811 million. HiMAP control unit shipments begin We developed and began shipping this advanced family of control units for transformer and gas insulated switchgear systems based on the IEC standard for electrical substation automation Outlook Although global economic recovery is forecast to be sluggish, global demand for electric equipment is projected to rise due to a number of factors. In North America, the construction of gasfired combined-cycle power plants to replace aging coal-fired plants and an aging power infrastructure will drive demand for new equipment. In the Middle East, Saudi Arabia, Kuwait, and the UAE are expected to steadily expand their power infrastructures, attracting intense competition from global as well as regional EPC contractors. Equipment demand is also expected to rise in Europe due to an aging power infrastructure, Russia due to infrastructure investment in the Far East, and the CIS for equipment modernization projects. In Asia and Africa, demand for low-cost equipment looks to continue to grow in India and China, while power infrastructure reconstruction and expansion projects in Africa are expected to get underway in earnest. In 2013, we will continue to target long-term supply contracts in the North American high-voltage 345 kv, 400 MVA-and-up market. We will pursue orders for 60 MVA-and-under transformers and shunt reactors and our Alabama transformer plant will enable us to respond in product categories where we are subject to sanctions. In Europe, we will build on our long-term gas insulated switchgear contract with Russia and new gas insulated switchgear plant in Vladivostok to target new transformer package orders. We will also pursue EPC projects across the continent as well as expand sales of explosion-proof motors to the oil and gas market. In the Middle East, we will continue to pursue package orders to improve profitability. We will also pursue framework agreements with upand-coming local EPC contractors to expand order opportunities. In Asia and Africa, we will improve our competitiveness by using Hyundai Heavy Industries (China) Electric Co., Ltd. products, and also continue to actively seek opportunities to participate in reconstruction projects in Africa.

25 46-47 Comprehensive Excavator Lineup We offer a comprehensive lineup of excavators ranging from 1.5- ton mini machines to 120-ton mining mammoths. Outstanding performance, design, and operator ergonomics make our equipment extremely competitive in the global marketplace, where we now lead the excavator segment in 14 countries worldwide.

26 48-49 Business Overview Construction Equipment At Hyundai Heavy Industries, we re known for building some of the world s most reliable and advanced construction equipment. From our cutting-edge technology to our commitment to superior post-sale service, we re helping build a better world Order Breakdown. Orders. Parent basis, by Value Parent basis, in USD millions Excavators 59% Forklifts 15% Wheel Loaders 11% Others 8% 2,734 2,773 CKD Exports 7% 1, Backhoe loader lineup launched In April 2012, we expanded our construction equipment lineup with the launch of our first backhoe loaders, the H930C and H940C. With demand for backhoe loaders rising in emerging equipment markets in the Middle East and India, we expect this new equipment category to be a significant growth driver for us going forward Overview The global construction equipment market shrank in 2012 due to a slowdown in infrastructure investment driven primarily by the unfolding Eurozone financial crisis and tight Chinese credit policies. In China, the world s largest equipment market and home to a growing number of competitive local makers, growth slowed for a second-straight year as tight credit continued to dampen demand. Demand in Brazil, a country quickly emerging as Latin America s largest equipment market in the run-up to the 2014 FIFA World Cup and 2016 Rio Olympic Games, was also down as economic growth slowed due to its reliance on trade with Europe and China. On a positive note, the year did see certain emerging equipment markets in the Middle East, Russia, and Africa continue to enjoy robust growth. North America also continued to see demand edge upward as the US housing market began to show signs of recovery Review Our sales fell driven primarily by slowing equipment demand in China and intensifying competition from local Chinese makers. Despite a tough economic environment in Europe, we grew our market share in the region by bolstering our sales organization in the region s top three markets France, Germany, and the UK. We expanded our market leadership in our core excavator business from 13 to 14 countries spanning the globe from the Middle East and Asia to Latin America by localizing equipment in response to customer needs and delivering exceptional customer service. We also continued to make rapid inroads in the forklift segment, boosting sales backed by a revamped sales organization, strong dealer network, and a growing product lineup. Forklift wins Red Dot Design Award Our 35BH-9 electric forklift was recognized for its world-class design at the 2012 Red Dot Design Awards, one of the world s top three industrial design competitions. We are committed to delivering innovations in technology and quality in all our equipment lines to satisfy the high expectations of today s customers Outlook We believe that the global construction equipment market will see growth rebound slightly in In China, the arrival of a new generation of leaders is expected to boost government investment in infrastructure. The US economic recovery looks to pick up speed in the second half of the year. Key emerging markets in Russia and Africa are projected to steadily expand infrastructure investment. Brazil is also expected to become an even more important market due to major infrastructure projects related to its hosting of the world s top-two sporting events within the next four years. The ongoing economic challenges that Europe faces make it unlikely that major equipment market will recover in the near future. In 2013, we continue to steadily grow our market share by upgrading and expanding both our sales network and service and support operations. We will start up production at our first manufacturing facility in Brazil in the first half of the year as we aggressively target new growth opportunities in Latin America s largest market where a number of major infrastructure projects are either underway or in the pipeline. We also aim to boost our market share in India from No. 3 to No. 2 by stepping up marketing and delivering equipment specifically designed to meet the needs of this market with huge growth potential. Looking longer term, our strategy is to systematically sharpen our competitiveness by continually investing in R&D, developing localized products, and delivering world-class service. We believe that developing next-generation equipment that brings together the latest advances in information technology to enhance efficiency and security and eco-friendly technology to meet the high environmental standards set in Europe and North America is key to meeting the changing needs of global customers and unlocking opportunities for growth worldwide.

27 50-51 Won 142 MW US Solar Module Order Our focus on delivering high-output solar modules enabled us to make further inroads in the US market in 2012, winning a 142 MW module order in a market where a number of major projects are now underway.

28 52-53 Business Overview Green Energy At Hyundai Heavy Industries, we re an emerging player in global solar and wind markets. By forging strategic alliances with world-class partners around the globe, we aim to deliver highperformance renewable energy solutions that will power a more sustainable future Order Breakdown. Parent Basis, by Value Orders. Parent basis, in USD millions 758 Solar Power 84% Wind Power 16% Won 22 MW Ukraine solar module order We booked a follow-on order for 22 MW of solar modules from Activ Solar of Ukraine on the heels of a 51 MW module order in 2011, boosting our presence in that Eastern European market Overview The global green energy industry faced a number of challenges in 2012 including ongoing chronic oversupply and slowing demand as governments worldwide continued to scale back incentives in the face of financial uncertainty. Looking at the global solar industry, Chinese manufacturers continued to dump their inventories, leading to cutthroat competition as the industry continued to consolidate. The European solar market contracted as the Eurozone financial crisis continued to unfold. China and Japan saw solar markets pick up in certain regions. In the US, a number of projects resumed as the government affirmed its alternative energy promotion policies. Looking at the global wind industry, China and India were the primary drivers of growth in Asia. In the US, uncertainty about long-term incentives cooled the market. The offshore wind segment grew in Northern European markets such as the UK and Germany as expected. In Korea, the new renewable portfolio standard program spurred wind farm development, including a planned 2.5 GW project off the southwest coast of the peninsula. solar development efforts on value-added solutions such as high-performance cells and modules suitable for any climate condition. Our wind business continued to win and deliver orders to overseas customers in markets such as the US and Finland. In Korea, we supplied eight 2 MW turbines for the 16 MW Changjuk Wind Farm project, our second project in the Taebaek region. We also continued to expand our onshore turbine lineup as well as develop offshore turbines to prepare for emerging market opportunities Outlook The global renewable energy market is projected to steadily grow in Although demand in Europe, historically the world s top market for solar and wind power, is currently hobbled by the ongoing Eurozone financial crisis, the outlook is more positive in other regions of the world. Government incentives in China, Japan, and other Asian markets are expected to drive growth across the region. There are also positive indicators for the industry in Latin America and other emerging markets. While the Korean wind market is expected to see increased activity spurred by the new renewable portfolio standard program, a 12% government budget reduction is causing concerns across the industry. In overseas onshore turbine markets, demand is forecast to be flat despite falling prices driven by market oversupply. The offshore wind turbine market is expected to continue to grow, with Europe being the focal point of activity. Despite the challenging nearterm outlook as the market grapples with chronic oversupply, the growth prospects for eco-friendly energy sources capable of replacing fossil fuels are solid over the long term. and developing modules designed to withstand harsh desert and marine environments. We also aim to expand order opportunities by expanding sales of small and medium-size rooftop systems in Japan and other developed markets, securing a solid order volume in the US market, and making inroads into Middle East markets. In the wind business, we will focus on enhancing our project management and service capabilities as we expand our 2 MW onshore turbine lineup to grow revenues. Development of a 5.5 MW offshore turbine is also in full swing as we leverage our extensive experience in offshore installation to pave the way for new project development opportunities in the offshore field Review We booked orders of USD 326 million in 2012, representing 42% of our respective target for the year. Our solar business won its largest module order to date, 142 MW of modules in the US. We also booked a 22 MW follow-up order from Active Solar in Ukraine and orders from Japan totaling over 30 MW as we steadily expanded our market base. We continued to focus our Commissioned Changjuk Wind Farm We supplied and commissioned eight 2 MW wind turbines for Korea s 16 MW Changjuk Wind Farm project in December. Following on the heels of the Taebaek Maebong Wind Farm project commissioned in May 2012, the nation s second wind farm built entirely with domestically-produced wind turbines showcases our capabilities as a total wind power solution provider. We are targeting orders of USD 237 million in 2013 as we concentrate on strengthening our operations and profitability by targeting value-added market opportunities and cost savings at all levels. Technical development in close collaboration with our R&D organization will play a key role in enabling us to deliver the innovative solutions that customers are looking for. In the solar business, we will continue to focus on boosting cell efficiency

29 54-55 #2 BTX Plant Completion In November 2012, Hyundai Oilbank officially completed construction of its #2 BTX plant. This joint-venture project with Cosmo Oil of Japan is capable of producing Capable of producing 915,000 tons of petrochemical products annually for export, including 800,000 tons of paraxylene and 115,000 tons of benzene.

30 56-57 Business Overview Refinery At Hyundai Oilbank, we re known for our cutting-edge refinery facilities and high-quality petroleum products. Today, we re investing in diversification to expand our revenue base and deliver the energy that will keep both us and our customers growing Sales by Product. Parent Basis Upgrading Ratio. Diesel 33.1% Naphtha 20.3% Gasoline 17.7% Bunker-C 10.3% Jet Fuel 9.1% Kerosene 3.6% Others 3.1% LPG 2.8% 34.4% 30.8% 17.4% #2 BTX plant completed On November 14, 2012, Hyundai Oilbank marked the official completion of this joint-venture project with Cosmo Oil of Japan. Capable of producing 915,000 tons of petrochemical products annually, including 800,000 tons of paraxylene and 115,000 tons of benzene, the plant occupies an 85,000 m 2 site adjacent to the company s Daesan refinery. Launching full-scale commercial production in February 2013, the plant s output will be primarily exported to overseas markets and is expected to increase sales Overview The global oil refining industry saw profitability decline slightly in 2012 due to a stagnant global economy that dampened demand for oil and spawned price volatility in the market. Expectations of economic recovery in the first quarter of the year and supplyside concerns due to sanctions on Iran initially boosted oil prices and refining margins. However, the deepening of the Eurozone financial crisis in the second quarter sent oil prices tumbling to the USD 94 per barrel level, weakening refining margins and leading to poorer-than-expected results in the refining industry for the first half of the year. In the third quarter, the industry showed signs of recovery due to expectations of economic recovery and the shutdown of aging refinery facilities worldwide that tightened supply. However, global economic growth slowed in the closing months, constricting oil price and refining margin growth, resulting in a slightly lower-than-average refining margins for the year Review Our sales grew in 2012 on the strength of continued strong oil prices, a strong first full year of operations at its #2 HOU (heavy oil upgrading) plant, and a successful overseas expansion strategy that included the upgrade of its Shanghai office to a subsidiary and the establishment of an office in Hanoi. With the global economic downturn leading to softer refining margins, operating profit slipped slightly. However, the company s domestic-industry- leading upgrading ratio of 34.4% and productivity gains enabled it to grow both domestic market share and exports, improving profitability and enabling it to outperform its industry peers in terms of operating margin. Hyundai and Shell Base Oil established Hyundai Oilbank joined forces with global oil major Shell to establish this joint venture to produce 20,000 barrels of base oil a day in Korea. Officially launched on April 16, 2012, Hyundai and Shell Base Oil will operate a plant located on a 33,000 m 2 site at the Daesan refinery. Scheduled to begin commercial operations in 2014, the plant will supply base oil to Shell customers in China and across Asia Outlook Global oil prices and industry margins are expected to decline slightly in 2013 as global supply issues are resolved and supply and demand stabilizes. While oil consumption is projected to continue to rise in the developing world, stagnant economies in the developed world are unlikely to improve, continuing to dampen oil demand. New refinery capacity is also slated to come online, boosting supply and leading to weaker prices and slightly lower refining margins for the year. In Korea, oil demand is expected to slow as government price stabilization policies such as self-service gas stations and the expansion of e-commerce continue, intensifying price competition in the market. Hyundai Oilbank is planning a major overhaul of its refining facilities in 2013 that is expected to reduce its operating ratio and sales volume, resulting in a slight reduction in sales for the year. However, operating profit is projected to improve for the year thanks to the company s highly-profitable upgrading facilities, expanding sales to high-margin overseas markets, and ongoing initiatives to improve productivity and reduce costs. The company also expects to complete a capacity expansion project at petrochemical subsidiary Hyundai Cosmo Petrochemical in 2013, boosting profitability as well as diversifying its business portfolio through strategic investments in new businesses as it lays the groundwork for continued growth in the coming years. Hyundai Oilbank 1% Nanum Foundation established On February 8, 2012, Hyundai Oilbank officially launched this organization dedicated to making a difference in the lives of the less fortunate in local communities across Korea. Professionally managed by a distinguished board of directors to ensure transparency, the foundation is responsible for disbursing funds collected from voluntary employee donations of 1% of their monthly pay, additional employee donations of their earnings from volunteer work as gas station attendants, and contributions from independent gas station owners.

31 58-59 Ship Investment Funds In 2012, HI Investment & Securities launched its third and fourth public offering ship funds HI Gold Ocean No. 3 and 8 attracting KRW billion in subscriptions. The company also floated a separate private ship fund, attracting approximately KRW 400 billion from institutional investors. The firm s ship funds have funded the construction of 27 vessels to date, providing additional business for the group s shipbuilding affiliates as well as solid investment opportunities for investors.

32 60-61 Business Overview Financial Services At Hyundai financial services, we re known for delivering quality brokerage, asset management, futures trading, corporate finance, and loan services to our customers. Today, we re working hard to provide the products and services they need to profit in uncertain economic times. Bond funds recognized for second straight year For the second time in as many years, a HI Asset Management bond fund was recognized at The Herald Business Fund Awards. The company s Good Choice Bond Fund was named the top Korean bond fund of 2012 for achieving exceptional longterm returns. HI Investment & Securities Client Asset. in KRW billions HI Asset Management Assets Under Management. (AUM: fund + outsourced fund) in KRW billions 37,585 29,849 30, ,902 6, ,792 Mobile trading app wins award HI Investment & Securities Smart Hi mobile trading app was recognized at the 2012 Customer Quality Satisfaction Awards sponsored by the Digital Chosun Ilbo Business & TV and the Korea Consumer Safety Association. Smart Hi won high marks for giving users free access to a comprehensive range of valuable investment information easily and quickly without requiring them to login. A tablet version launched in August has also received good reviews from consumers. Named International Equity Fund House of the year HI Asset Management was named International Equity Fund House of the year at the Morningstar Korea Fund Awards Presented by the Korean subsidiary of international investment research provider Morningstar in March, the award recognized the company s fund groups for delivering sustained risk-adjusted returns for investors over the past three years Overview The Korean stock market had a roller-coaster year in 2012 as the market grappled with major international issues such as global financial policy coordination, concerns about the viability of the Eurozone, and the fiscal cliff negotiations in the US. The KOSPI closed the year up 9.38% or points at 1, However, the average daily trading volume of KRW 4.8 trillion was a sharp 29.9% drop over 2011, reflecting the challenging business environment the securities industry faced. The profitability of the industry took another hit as financial authorities focused on improving the fund system, protecting individual fund investors, preventing losses from voice phishing, and strengthening regulations to prevent money laundering. The Korean fund market showed a strong preference for safe assets as global economic uncertainty grew. Assets held in bond and money market funds experienced a sharp increase, while more risky equity funds continued to see selloffs. In the fund market, international bond funds were the best performers, followed by international equity funds, domestic bond funds, and domestic equity funds Review HI Investment & Securities saw net operating profit fall 14% to KRW 158 billion. The challenging environment marked by a stagnant stock market and intensified competition, leading to falling commission fees, was partially offset by strong performances in corporate and ship finance. The company s unique ship funds had a banner year, attracting KRW billion through public placement and an additional KRW billion through private placement. The company entered the top-10 on media league tables as it beefed up its asset-backed corporate paper and corporate bond marketing capabilities. The company s research center also won high marks in evaluation after evaluation by media companies, establishing itself as a small-but-powerful player in the research field. The company continued to win acclaim for its mobile services, with its Smart Hi smartphone mobile trading service app taking top honors in its category at the 2012 Smart Financial App Awards. HI Asset Management saw assets under management increase 9.4% to KRW 6.8 trillion in 2012 through targeted marketing and Ship investment funds launched In 2012, HI Investment & Securities launched its third and fourth public ship funds HI Gold Ocean No. 3 and No. 8 in February and June, respectively, attracting KRW billion in subscriptions. The company has also floated separate private ship funds attracting approximately KRW 400 billion from institutional investors. Combined, the funds have invested in a total of 27 ships to date. products tailored to customer needs as it successfully solicited institutional funds and improved operating margins. Like the rest of the industry, the company saw a large increase in money market and investment trust assets. The company attracted funds from institutional investors by focusing on specialized alternative funds such as ship funds. While the July launch of the China Mainland A-Stock Fund was particularly well received, enabling the company to partially increase set-up fees, profitability weakened as the number of high-yield equity fund products dropped and yields fell. In December, the company launched its first hedge fund as it continued to diversify its product portfolio Outlook The direction of the Korean stock market will be largely determined by external factors such as the US fiscal cliff negotiations, new leadership in China, European economic recovery, and US interest rate policy. In Korea, a recovering economy is expected to boost listed firm operating incomes. This, combined with positive economic outlooks in China and the global economy, is expected to enhance stock market valuations in In the Korean fund market, global uncertainty is forecast to result in a continued preference for safe assets, increasing demand for moderate-risk, moderate-return and tax-saving/low-tax products. Low interest rates will continue, financial assets will increase, and the pension market will grow as Korea s population continues to age. The business environment is expected to be similar to 2012, with the industry seeing a widening performance gap between top-tier and second-tier firms and ongoing consolidation around the industry leaders.with economic recovery expected to pick up in the first half of 2013, HI Investment & Securities will leverage the research of its well-regarded analysts to target opportunities in institutional sales and new business categories such as pension funds, ship funds, structured products, over-the-counter derivatives, investment trusts, and bonds. Taking into account the accelerating shift in sales to online platforms with the adoption of electronic signatures for financial transactions, the company is also bolstering its external and non-face-to-face sales channels. This, as well as enhanced cross-marketing between headquarters and the retail sales network will help the company maximize revenue and achieve its business targets. Despite facing an unfavorable market outlook in 2013, HI Asset Management plans to focus on restoring its competitiveness to minimize the decline in public subscription equity funds and boosting its competitiveness in the private subscription to grow assets under management. The company will expand its pension fund lineup and private subscription funds for private banking customers to attract assets and expand its market leadership. The company will also continue to sharpen its management and marketing capabilities through timely restructuring as it focuses on enhancing its ability to respond to market challenges by concentrating on the high-yield alternative fund segment.

33 62-63 Business Overview Research & Development At Hyundai Heavy Industries, we build tomorrow by innovating today. Our unique research organization gives us a powerful competitive advantage that ensures our long-term growth and profitability in the increasingly competitive global marketplace. R&D Expenditures General Research Institute Maritime Research Institute (MRI) Founded in 1984, MRI develops the industry-leading core technologies that make our ships and offshore structures the best in the business. Focusing on the fields of hydrodynamics, structural mechanics, and experimental research for both ships and offshore structures, MRI is developing the new technologies and businesses that will ensure our continued leadership in these fields. In 2012, MRI partnered with the Shipbuilding Division to develop a proprietary energy saving device designed to improve ship sailing speed while reducing fuel consumption. Initially proven in use on containerships and very-large crude carriers, the device can be adapted for use on any kind of ship, making our vessels even more attractive to potential customers. Engine & Machinery Research Institute (EMRI) Reorganized in April 2012, EMRI has the dual mission of enhancing the performance and reliability of our existing engine, industrial robot, and hydraulic machinery lineup as well as developing nextgeneration equipment. Focusing on integrated development systems and key technologies covering all aspects from initial design to verification testing, EMRI creates products that are optimally designed for their intended usage environment and development parameters. 232 consolidated basis, in KRW billions Goliat FPSO In 2012, EMRI developed the H35/40DF engine, a dual-fuel engine capable on operating on either natural gas or diesel fuel. The engine was designed taking into account the specific operational parameters for each fuel type to deliver optimal performance in both modes. In gas mode, it meets IMO Tier 3 standards without additional emissions control equipment. The design and technical insights gained through this project will help us expand our dualfuel engine lineup and win new business going forward. Construction Equipment Research Institute (CERI) Founded in 2012, CERI has the mission of making our construction equipment lineup one of the most creative and innovative in the industry. Focusing on core technologies designed to optimize equipment performance, reliability, productivity, and controllability, CERI develops virtual design tools, major mechanical and electrical components, and energy-saving control systems. In 2012, CERI developed a virtual development system for excavators that enables the performance of new designs to be simulated and evaluated to create an optimized design before prototypes are built. The system is currently capable of evaluating basic equipment, work speed, and fatigue life related to the structural and hydraulic systems, incorporating data from actual prototype and production model field tests to continually improve both design and quality. Future system development will focus on fuel consumption and operability factors. Corporate Technology Institute Advanced Technology Institute (ATI) Founded in 2012, ATI develops the core technologies and systems that keep our world-class products at the top of their respective fields. Focusing on comfort, safety, and eco-friendliness, ATI is delivering practical solutions for offshore oil and gas plants, power plants, seawater desalination plants, engine emission control systems, and other fields. In 2012, ATI developed a number of noise-reducing design/ engineering technologies designed to satisfy increasingly stringent international noise standards for specialized vessels used in the offshore oil and gas production, storage, and transport fields. The new technologies will enable us to significantly reduce both noise and production costs, providing another point of differentiation from our industry peers. Industrial Technology Institute (ITI) Founded in 1983, ITI plays a vital role in developing new concepts in design and production technologies that enhance the competitiveness of our products. Focusing on fields such as welding, casting, protective coatings, and automated manufacturing, ITI leverages its state-of-the-art analysis equipment, simulation facilities, and internationally accredited material testing laboratory to take our product quality and productivity to the next level. In 2012, ITI developed a new automated adhesive dispenser system for installing Mark III membrane tanks used in LNG carriers. The system uses a polyurethane adhesive that offers a number of benefits over traditional epoxy adhesive solutions, including a superior bond and impact resistance as well as shorter curing times that help improve productivity and reduce costs, further enhancing our price and cost competitiveness. Electro-Mechanical Research Institute Frontier Technology Institute (FTI) Founded in 2012, FTI will play a leading role in developing the new businesses that will drive our future growth. Focusing on a broad spectrum of energy-related fields as well as medical robots and enhanced industrial design, FTI is now exploring, developing, and bringing to market promising technologies that will significantly expand our business portfolio in the coming years. In 2012, FTI won safety approval from the Korea Food & Drug Administration for a five-axis surgical robot designed to assist in joint replacement operations. Following the signing of a supply agreement with US-based Curexo Technology Corporation, the developer of the world s first robot to assist in human hip replacement surgery, FIT is now working on a slimmer six-axis version designed to expand the range of operating positions for orthopedic procedures. Electro Electric Systems Research Institute (EESRI) Founded in 1982, EESRI develops key power equipment technologies that make power transmission and distribution more efficient and reliable. Focusing on the fields of electrical and mechanical engineering, EESRI is engaged in a variety of R&D activities ranging from the fundamental to the applied and the theoretical to the practical. In 2012, EESRI partnered with the Electro Electric Systems Division to develop a shunt reactor, a key piece of substation power equipment designed to stabilize voltage during load variations to prevent power system outages, voltage fluctuations, and protection relay malfunctions. The project also developed a design program to assist in core design and magnetic field evaluation, facilitating costsavings from the design stage to enhance our competitiveness in this new field. Green Energy Research Institute (GERI) Founded in 1997, GERI develops the solar and wind power solutions that have made us an emerging player in these important renewable energy fields and focuses on high-efficiency solar cells and modules as well as onshore and offshore wind turbines. In 2012, GERI continued to increase the conversion efficiency of our solar cells by adding a rear surface passivation layer to the existing selective emitter cell structure, boosting efficiency from 19.8% to 20.4%. The new technology also uses copper instead of silver in the front electrode plating process, giving our solar cells an important cost advantage in this intensely competitive market. Hyundai Mipo Dockyard Research Institute of Marine Technology Founded in 2001, this center supports Hyundai Mipo Dockyard in its mission to build world-class medium-sized conventional ships and specialized vessels. The center s primary focus is on delivering innovations in the fields of CAD/CAM technology, vessel development, and structural vibration reduction. Hyundai Oilbank Central Technology R&D Institute Founded in 2011, this institute consolidates the R&D functions and personnel previously scattered across a number of Hyundai Oilbank worksites across Korea to focus on developing tomorrow s refining technologies as well as new technologies for lubricant base oil, propylene, next-generation fuels, and a broad range of other petrochemical fields.

34 64-65 Corporate Responsibility We are committed to making our world a better place. 66 Community Commitment 68 Environmental Commitment

35 66-67 Corporate Responsibility Community Commitment At Hyundai Heavy Industries, we build a brighter future by building win-win relationships with all our stakeholders. We work hard to forge mutually beneficial relationships with our employees, partners, and community to create greater growth and prosperity for all. Charity donation ceremony Annual collective bargaining agreement Employee housing Resort facilities Medical care Scholarship program Employee Welfare We are proud to provide a comprehensive package of benefits to our employees and families that includes housing support, healthcare coverage, educational support for dependents from daycare through university graduation, and discounted use of resort facilities at major leisure destinations across Korea. In October 2012, we become the first local shipbuilder to create and launch a pilot retirement planning program to assist the 1,000- plus members of our family who are now reaching retirement age each year successfully make the transition. In 2012, we concluded our 18th straight annual collective bargaining agreement without dispute as labor and management came together to strengthen our fundamentals during a year of continued challenging conditions. Rather than wage increases, the negotiations focused on preserving jobs, including raising the mandatory retirement age to 60, a first for the Korean shipbuilding industry approved by 78.8% of the rank and file. Partner Development The Hyundai Technical Education Institute (HTEI) has trained skilled professionals in a number of areas since In 2003, we were selected by Korea s Ministry of Employment and Labor to be a part of consortium to train small and medium business employees. HTEI runs a total of 13 courses covering shipbuilding, machinery, electrical systems, CAD, painting, and other fields. The courses run between three and five months with around 30 total sessions annually. Over 32,000 people have completed training to date, with more than 90% securing employment. Community Service As a major employer in the Ulsan region, we take social responsibility very seriously. We actively support local agricultural and fisheries industries through foodstuff purchases by our foodservice and food donation programs. We raise funds to aid parentless families and shut-in seniors, orphanages, and nursing homes. Our annual charity bazaar sells clothing, electronics, and other unneeded items donated by employees with the proceeds going to fund scholarships and the traditional annual winter kimchi-making event that provides this Korean staple to local welfare organizations and needy residents. In 2012, we expanded our community service activities into several new areas. We signed a memorandum of understanding to support and encourage local military personnel serving in the ROK Army 53rd Infantry Division through library materials, and a shipyard tour program. We partnered with senior centers to support bi-weekly outings to major local attractions to give local seniors a healthy opportunity to get out and enjoy their community. We also reached out to multicultural families in our community, sponsoring a visit to Yangdong Folk Village in Gyeongju to let them experience traditional Korean village life and get better acquainted with local customs and traditions. Our employees generously volunteer their time and resources to benefit the worthy causes mentioned above. From 2010 to 2012, around 24,000 of them also donated the change from their paychecks to a special charity fund, raising over KRW 227 million for a variety of worthy causes including medical treatment for children with cancer and heart problems and food assistance for low-income, single-parent families. We are also proud that around 16,000 Hyundai Heavy Industries Group employees to date have signed organ donation cards to give the gift of life. Our social commitment extends far beyond Korea. In recent years, we have dispatched equipment and support teams to aid in disaster relief in Haiti, China, Brazil, Japan, and Turkey as well as donating funds to rebuild schools and hope. We have also sponsored medical programs in India and Angola, providing care, medicine, and facilities that have made a real difference in needy communities. Education We are firm believers in the value of a quality education. We operate a number of primary and secondary educational institutions, including the University of Ulsan and Ulsan College. The former has the highest graduate employment rate of any Korean 4-year college and has been ranked one of Korea s top universities for the past five years. We also operate a Housewives College program each spring that provides employee spouses with a wide variety of opportunities for learning and selfdevelopment. Over 10,000 spouses have graduated from the program to date, going on to enrich the community through active volunteer service. Culture & Arts We are proud to have played a part in making one of Korea s top manufacturing cities one of its most cultured. Over the years, we have helped expand Ulsan s cultural infrastructure by building a total of seven cultural and arts centers. The largest of these is the Hyundai Arts Center. Completed in 1998, this multi-purpose facility features a 1,000-seat main hall that hosts world-class concerts, operas, and musicals as well as an art gallery, a movie theater, and a variety of leisure and sports facilities. We are also an active patron of the arts, supporting a number of local choral and orchestral groups such as the highly regarded Ulsan String Players, Korea s first chamber orchestra founded with corporate sponsorship. Beyond their formal concert hall performances, these and other groups bring cultural experiences to everyday life in the Ulsan area through special performances at venues such as welfare centers, hospitals, and industrial worksites.

36 68-69 Corporate Responsibility Environmental Commitment At Hyundai Heavy Industries, we build a better future by building a greener, safer, and healthier present. Our commitment to being a leader in low-carbon green growth as well as workplace safety and health is ensuring a sustainable future for both us and our community. Hazardous Material Usage. in metric tons per year / Ulsan yard Wastewater Discharges ,156 6, in cubic meters per year / Ulsan yard 8,046 Pollution control facilities Community cleanup initiatives Safety promotion campaigns On-site Health Center Environmental Management Strategy Strengthen Environmental Systems Adopt systematic worksite monitoring systems Bolster workforce environmental training Implement environmental information system Comply with Environmental Regulations Comply actively with international conventions on climate change Establish proactive response mechanism for international regulations Respect domestic environmental regulations Build Clean Manufacturing Systems Minimize resource and energy usage Minimize waste generation and maximize recycling Optimize operation of pollution prevention facilities Enhance Environmental Initiatives Participate actively in community environmental activities Participate actively in voluntary agreements Produce and publish environmental reports Emphasize Eco-Friendly Businesses Develop eco-friendly products and technologies Expand renewable energy businesses Green Management System Environmental management has been a core part of our operations since we acquired ISO certification in We took that commitment to the next level in 2012 by earning KS I 7001 and KS I 7002 certification from Det Norske Veritas (DNV) of Norway. Created by the Korea Accreditation Board in July 2011 following the passage of Korea s Framework Act on Low Carbon, Green Growth, the KS I 7001 and KS I 7002 standards are collectively known as Green Management System (GMS) certification. GMS builds on the ISO framework, adding greenhouse gas management, energy management, green procurement, ecofriendly engineering, and social responsibility. We believe that our new GMS will enable us to improve our management direction in terms of environmental impact evaluation, performance indicators, green purchasing, and product development, enabling us to more efficiently and effectively minimize pollution emissions, develop and deliver green products, respond to climate change, and build a recycling-centric resource management system. CO2 Mitigation We are an active participant in the Korean government s targetsetting program to reduce emissions and energy consumption. We became the world s first shipbuilder to complete a greenhouse gas inventory in Verified by the Korean Standards Association, the inventory provides an accurate, credible, and transparent accounting of our environmental responsibility. In 2012, we achieved our emissions reduction target of 1.26% of the business-as-usual level. We aim to raise the bar higher in 2013 with a 2.9% reduction target. We are now participating in a pilot emissions trading program to bolster our risk management capabilities in this field and more effectively prepare for the expected launch of Korea s cap-and-trade program in Clean Production We operate and maintain clean production systems as part of our commitment to minimize pollution at the source. Our more than 250 pollution prevention and control facilities are continuously monitored and maintained to ensure optimal performance. We also continue to improve our production processes to steadily reduce the environmental load of our operations. Our internal pollution emissions standards are extremely strict, allowing only half of the legally permissible levels. In addition to preventing and reducing waste generation, we also systemically sort and recycle waste to use our resources more effectively and efficiently. We follow strict handling procedures for all types of waste generated during production as well as hazardous materials to ensure they are legally disposed of. In September 2012, we joined five other shipbuilders in signing a second voluntary agreement with Korea s Ministry of Environment and local governments to voluntarily reduce volatile organic compound (VOC) emissions to ensure a healthier, more pleasant environment for local residents. Our goal is to reduce VOC emissions by over 4,000 tons during the five-year agreement period running through Workplace Safety The safety of our people is our number-one priority. We are actively involved in a wide variety of initiatives to make a zero-accident workplace a reality. We established our Safety Learning Center in 2005 to enhance the effectiveness of our safety training. The center offers a total of 14 courses that provide realistic, hands-on training on how to avoid and handle common workplace hazards. Our annual safety video competition provides an opportunity to take our safety culture to the next level by raising awareness and participation. These and a wide range of other programs such as safety motto and poster competitions and recognition of collective and individual safety excellence are helping make our yards and worksites among the safest in the industry. Workplace Health Caring for the health and well-being of our people is another one of our top priorities. Staffed by over 30 medical professionals, our Health Center provides Ulsan yard employees with immediate on-site access to quality care. We operate a wide range of health programs that focus on preventing musculoskeletal and cerebrovascular disorders, noise-induced deafness, and other occupational diseases. We also continue to partner with the local community health center to expand our smoking cessations programs, incentives, and counseling services to help our people fundamentally improve their long-term health. ISO 14001, OHSAS 18001, and KS I 7001 certifications Emissions trading pilot program agreement VOC reduction voluntary agreement signing

37 70-71 Consolidated FINANCIAL STATEMENTS We are expanding the possibilities for sound and profitable growth. 72 Management s Discussion & Analysis Independent Auditors Report Consolidated Statements of Financial Position Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements