Kumho-Tire-Annual-Report-1298.Pdf

THE NAME YOU CAN TRUST CAN YOU NAME THE KUMHO TIRE ANNUAL REPORT 2018 THE NAME YOU CAN TRUST KUMHO TIRE ANNUAL REPORT 2018 (ENGLISH)

68, Saemunan-Ro, Jongno-Gu, Seoul, KOREA T 02. 6303. 8114 | F 02. 6303. 8297 WWW.KUMHOTIRE.CO.KR KUMHO TIRE ANNUAL REPORT 2018

THE NAME YOU CAN TRUST CONTENTS 01 02 03

Amid mixed voices of supporters and skeptics, Kumho Tire is on track in normalizing its business activities. After it successfully landed foreign investments on the verge of a court receivership in early 2018, the company proclaimed later the same year its new vision of becoming a Trusted Brand, reiterating its commitment to continued prosperity. More encouragingly, the company showed off its still thriving quality and technology as it added new OE supply to some major global automakers, and became the first Korean tiremaker to sign a technology transfer deal with a foreign company. As such, Kumho Tire was able to surpass any uncertainty with confidence in its strengths. The name Kumho speaks for itself. Opportunities O

Hopeful H

Momentum M

Unity UU

Know-how K Kumho Tire is striving to regain market trust in its brand name. It will put forth everywill put forth name. It brand in its trust market regain to is striving Tire Kumho employees, for its workplace is a great that company as a sustainable in emerging effort corporate and a faithful suppliers, its to partner a trusted customers, name to brand a reliable value. while enhancing shareholder communities, local to contributes that citizen harmonious labor is building on its Tire Kumho knowledge, accumulated on its Drawing in its Doublestar, with the new majority shareholder, as it harnesses synergies relations company. tire top-tier being a global toward endeavors ceaseless KUMHO KUMHO for stands elements five of success Opportunities O

Hopeful H

Momentum M

Unity UU

Know-how K Know-how strong. remained has technology quality and advanced product world-renowned Kumho’s the KL33 for and Crugen the BMW 5 Series for PS91 ECSTA supplying its now is The company to sign manufacturer tire Korean the first was Kumho that, of On top Atlas. Volkswagen manufacturer battery the Pakistani to technology tire its transfer to deal 5 million a USD Century in 2018.

Opportunities O

Hopeful H

Momentum M

Unity UU

Unity to the special agreement from originated a rebound The hope for and management that with business normalization ahead go for the sake concessions The dignified 2018. labor signed in early rectifying point of the starting survival marked the company’s of out their sides ironed when both practices wrongful past disagreements. U

Opportunities O

Hopeful H

Momentum M

Momentum business Kumho’s for momentum strong will feed with Doublestar cooperation from The synergy developed in its in China the Chinese shareholder of channels distribution 4,500 into tap can as Kumho normalization, materials raw of In addition, the joint purchase country. business in that with its on track back get to attempt in China. expenses and logistics on costs save will help Kumho M

Opportunities O

Hopeful H

Hopeful in the global to the slowdown due quarter straight for the eighth a deficit recorded Tire Kumho turned around Performance markets. in China and European and sluggish sales market auto portfolio as product as well tires winter sales of improving 2018 thanks to of quarter in the fourth new supply lines. of and the addition delivery system, a stable hikes, and price restructuring future. a better expect now can we This means H

Opportunities O

Opportunities as a a rebound for preparing and spent the year Brand,” new vision, “Trusted its declared Tire In 2018, Kumho court of on the verge agreement labor-management FDI through of inducement dramatic Its company. sustainable and plunging slowdown economic amid the global even in profit a turnaround for the way paved receivership in is investing the company term, longer In the sales volume. falling of in the aftermath plants of ratio operation trust. market restore to R&D and facilities technology 0

H Hopeful The brand value of Kumho Tire remains intact, and will only evolve in the coming years. Although we have successfully overcome a survival risk and mended past wrongful practices, we are faced with still more challenges ahead. Market uncertainties are here to stay with the oversupply of the tire market and fierce competition amid growing economic uncertainties in the global economy. However, Kumho Tire has proven its strength and potential in the course of overcoming this past year’s crisis. Today, Kumho Tire is surging ahead toward a better future. THE NAME YOU CAN TRUST CEO MESSAGE THE ROAD TO RESILIENCE MARKETING STRATEGY SOCIAL RESPONSIBILITY NEWS HIGHLIGHTS VISION AND STRATEGY MOTOR SPORTS BUSINESS ETHICS FINANCIAL HIGHLIGHTS TECHNOLOGY LEADERSHIP GLOBAL MARKETING SOCIAL COMMITMENT BUSINESS REVIEW RESEARCH AND DEVELOPMENT ENVIRONMENTAL MANAGEMENT CEO MESSAGE BRAND PORTFOLIO

Guided by the 2018 business principles of “market-oriented, back to basics, profit generation, and employee satisfaction,” everyone at Kumho Tire worked tirelessly for the company’s prosperity. Going forward, we will continue enhancing production efficiency and cost competitiveness for higher profitability. Every department at the company will make concerted efforts to exceed market demands in quality and technology.

Valued customers and shareholders,

I’d like to begin this letter with my sincere gratitude for your genuine support of Kumho Tire.

We at Kumho Tire have made sincere efforts towards strengthening the company. This has been in line with the 2018 business principles of “market-oriented, back to basics, profit generation, and employee satisfaction.” This took root when we successfully revamped our fundamentals so that we can promptly respond to market developments. Furthermore, the foreign investment that we’ve induced for business normalization helped stabilize the corporate equity structure.

Looking ahead, we will focus on profitability in 2019 through continued initiatives of production efficiency and cost competitiveness. Every department at Kumho will do its utmost to exceed market demand in product quality and technology. In the meantime, we will do everything we can to recover the trust of all stakeholders: customers, shareholders, local communities, suppliers and employees.

Today, Kumho Tire commands strong market power on the strengths of its accumulated R&D and production technologies. Behind these achievements were our dedicated employees who have been through all these challenges with us. Everyone at Kumho Tire will passionately fulfill their roles and continue their hard work to generate synergies for the betterment of the company.

I deeply appreciate your continued support of Kumho Tire and wish all the best for you and your loved ones.

Thank you.

Jeon Dae-jin President & CEO Kumho Tire Co., Inc.

KUMHO TIRE ANNUAL REPORT 2018 16 KUMHO TIRE ANNUAL REPORT 2018 17 THE NAME YOU CAN TRUST CEO MESSAGE THE ROAD TO RESILIENCE MARKETING STRATEGY SOCIAL RESPONSIBILITY NEWS HIGHLIGHTS VISION AND STRATEGY MOTOR SPORTS BUSINESS ETHICS FINANCIAL HIGHLIGHTS TECHNOLOGY LEADERSHIP GLOBAL MARKETING SOCIAL COMMITMENT BUSINESS REVIEW RESEARCH AND DEVELOPMENT ENVIRONMENTAL MANAGEMENT NEWS HIGHLIGHTS BRAND PORTFOLIO

At Kumho Tire, 2018 was full of dynamic events. When the company and its labor union received investment from China’s state-run tire company Doublestar, it paved the way for a turnaround and a new start. This decision proved to be right when the company signed new contracts with global automakers for the supply of OE tires in the latter part of the year. Even amid all the hardships, the company’s commitment remained intact as it continued various social outreach activities as well as active marketing campaigns including motor sports.

Ceaseless R&D Efforts Sustainability Management at Kumho Tire Introduced in May 2018, Kumho’s premium comfort As a socially responsible corporate citizen, Kumho tire, the Majesty 9, drew a positive market response, emerging to be- Tire engages in a number of activities that reach out to the underprivi- come a new steady seller. Optimized for premium sedans, the Majesty leged and address environmental issues. 9 boasts improved comfort and a quiet ride compared to the conven- The Carbon Offset Forestation Project that the company initiated in tional Majesty Solus. In addition, its wear performance and braking 2015 along with the Seoul Municipal Government celebrated its fourth performance in snow conditions improved by more than 20 percent anniversary in 2018. We have planted fruit trees, shrubs and seedlings compared to its precedent. in the vicinity of Mt. Bukhansan in the northern part of Seoul to cre- The Majesty 9 employs Sound Harmony Technology, whose optimal ate a forest spanning 6,000㎡. The area is expected to absorb approxi- pattern block layout helps reduce the noise of particular frequencies mately 203 tons of carbon dioxide over the next three decades, helping and fine-tune the noise dispersion. The reduced noise makes the tire a to address environmental pollution issues. Becoming One of the World’s Best perfect fit that caters to the preference of luxury car drivers for a quiet Active Marketing Campaigns Kumho Tire also reaches out to the underprivileged through various Kumho Tire wrapped up its sale of stakes to Double- ride. The hologram decoration on the side wall completes a high-end Kumho Tire has concluded a partnership agreement projects like the Study Room for Hope Project, which decorates and star in July 2018, when the company received an investment of KRW exterior and elegant surface texture, while the sophisticated tread pat- with Korea Motor Sport Bridge, the official promoter of the TCR Korea donates supplies for study rooms for students from low-income fami- 646.3 billion in a third-party allocation capital increase. Doublestar tern smartly embraces a geometric pattern and modern curved designs. Touring Car Series event. Launched in 2015, the TCR is an international lies in their home; it donates female hygiene supplies to the Pink Box is China’s state-run tiremaker, and has significant market strength in motorsports competition exclusively for mass production cars. Only Furthermore, Kumho Tire’s outstanding design competitiveness was Project for financially distressed female students; the Fellowship of commercial tires. Its 4,500 distribution channels in China is highly ex- cars valued KRW 170 million or below are qualified for the event. In proven by four major design awards. In 2018, the electric vehicle tire Santa visits underprivileged children to grant their Christmas wishes; pected to generate synergies when met with Kumho’s prominence in Korea, cars equipped with Kumho tires raced the circuits in Yeongam Wattrun VS31 was the finalist in the 2018 Red Dot Design Awards in the Love Your Neighbors campaign provides low-income families with car tires. The two partners’ advantages in facility investments, R&D, in August and November and in Inje in September. Germany; the concept tire BON was a finalist again at the iF Design food and supplies for ancestral rites on traditional holidays; and there management, and sales will help with Kumho’s goal to become one of Awards, following its prize-winning at the IDEA Design Awards. The Kumho Tire was present at Germany’s Tire Cologne 2018 tire exhi- is a Home Country Visit Program for Korean-Vietnamese families. the world’s top ten tiremakers. Wintercraft WP72 tire also received high scores at the Good Design bition in May 2018. The company showcased a total of 23 products, On top of that, Kumho Tire’s excellent product quality and technology Awards in Japan. including its high-performance products, new products, year-round were proven by back-to-back agreements with several leading glob- products, winter tires and EV tires in seven different sections within al automakers for supplying original equipment. Kumho Tire is now its exhibition booth organized by the Association of Tire Dealers in supplying the Crugen Premium KL33 for Volkswagen’s Atlas, the Ecsta Germany. Of particular note was that it was the first time that Kum- PS91 for BMW’s G30 5 series, and the Solus KL21 for Mercedes-Benz’s ho Tire’s new products, the Ecsta HS52 and the Ecsta PS71 SUV were new G-Class. debuted, promoting Kumho’s competitive technology and product quality to global dealers. In September, the company became the first Korean tiremaker to sign a technology transfer deal with Pakistan’s Century Engineering In November, Kumho Tire extended its partnership with Tottenham Industries. The agreement calls for the transfer of its tire manufactur- Hotspur F.C., where Korean football star Son Heung-min extended his ing technology to the Pakistani tiremaker over the course of 10 years. contract for another three years until the 2020-2021 season. Estab- Kumho Tire is receiving USD 5 million in initial transfer fees, with a run- lished in 1882, Tottenham Hotspur F.C. is part of the English Premier ning royalty amounting to 2.5 percent of future sales. Kumho will not League, where it ranks amid the top each year. It also boasts more than only transfer tire technology in general, but also provide consulting 160 official supporters’ clubs and more than 400 million fans world- on the entire manufacturing process, which will range from designing wide. Under the sponsorship contract signed in 2016, Kumho Tire has and standardization to quality control and evaluation. It will also offer been exposing its brand through various channels, including the club’s solutions to issues that may arise during the course of manufacturing. official website, match brochures, LED signboards, and A-boards at Tottenham’s home pitch.

KUMHO TIRE ANNUAL REPORT 2018 18 KUMHO TIRE ANNUAL REPORT 2018 19 THE NAME YOU CAN TRUST CEO MESSAGE THE ROAD TO RESILIENCE MARKETING STRATEGY SOCIAL RESPONSIBILITY NEWS HIGHLIGHTS VISION AND STRATEGY MOTOR SPORTS BUSINESS ETHICS FINANCIAL HIGHLIGHTS TECHNOLOGY LEADERSHIP GLOBAL MARKETING SOCIAL COMMITMENT BUSINESS REVIEW RESEARCH AND DEVELOPMENT ENVIRONMENTAL MANAGEMENT FINANCIAL HIGHLIGHTS BRAND PORTFOLIO

Global automobile markets—and tire markets—are faltering over slowing growth in major market demand and trade disputes between the U.S. and China. Market demand is quickly shifting to larger vehicles such as SUVs and pick-ups. Against this backdrop, Kumho Tire

recorded KRW 2,558.7 billion in sales and KRW 78.9 billion in operating loss for 2018. Global Sales of Cars by Segment | Unit: %

5.6 8.5 Subcompact Others 12.0 6.6 Compact Pick-up Trucks Kumho Tire Sales by Year | Unit: KRW in billions Percentage of Large-diameter Products | Unit: % 5.3 MPV 2018 2,558.7 2018 40.3

2017 2,876.4 2017 38.3 16.2 2018 2016 2,947.2 2016 37.6 Mid-size

35.1 | Unit: KRW in billions | Unit: % 8.3 SUV Operating Profit Operating Margin Entry-Level Luxury 2.4 Full-size 2018 -78.9 2018 -3.08

2017 -157.2 2017 -5.46 * Source: Hyundai Motor Group Global Business Intelligence Center

2016 -120.1 2016 4.07

2017 2018 2019 (estimate) Global Demand for Finished Cars by Year | Unit: 10,000 vehicles, % 9,230 9,244 9,249 ( ) ( ) ( ) | Unit: KRW in billions Sales by Region 182(0.2) 181(0.2) 179(0.2) Korea 2,456(26.6) 2,315(25.0) 2,320(25.1) OE Tires China RE Tires 63.4 174.4 1,728(18.7) 1,725(18.7) 1,700(18.4) U.S. North China America 266.3 1,781(19.3) 1,784(19.3) 1,780(19.2) 614.2 Europe 3,113(33.7) 3,239(35.0) 3,270(35.4) 439.8 Others 202.9 23.8

2017 2018 2019 (estimate) Europe 327.4 Global Tire Demand by Year | Unit: million tires, % 322.8 1,866 1,920 1,976 Korea ( ) ( ) ( ) 890.6 22.0 563.2 38(0.2) 39(0.2) 41(0.2) 299.0 Korea 358(19.2) 378(19.7) 395(20.0) China Others 349(18.7) 352(18.3) 355(18.0) 456.8 U.S. 462(24.8) 470(24.5) 480(24.3) Europe 434.8 659(35.3) 681(35.5) 705(35.7) Others

* Source: Hyundai Motor Group Global Business Intelligence Center

KUMHO TIRE ANNUAL REPORT 2018 20 KUMHO TIRE ANNUAL REPORT 2018 21 THE NAME YOU CAN TRUST CEO MESSAGE THE ROAD TO RESILIENCE MARKETING STRATEGY SOCIAL RESPONSIBILITY NEWS HIGHLIGHTS VISION AND STRATEGY MOTOR SPORTS BUSINESS ETHICS FINANCIAL HIGHLIGHTS TECHNOLOGY LEADERSHIP GLOBAL MARKETING SOCIAL COMMITMENT BUSINESS REVIEW RESEARCH AND DEVELOPMENT ENVIRONMENTAL MANAGEMENT BUSINESS REVIEW BRAND PORTFOLIO

The successful influx of foreign investment in 2018 initialized business normalization at Kumho Tire. Although the company suffered operating losses in the aftermath of the slowing domestic sales growth of complete cars and the pullback in the Chinese market amid the intensifying U.S.-China trade war, we are fully prepared to overcome the crisis on the back of our accumulated know-how and technology and our synergy with Doublestar. Korea China

2018 890.6 2018 266.3

950.0 2018 340.9 2018 2017 34.8% 2017 10.4%

2016 959.0 2016 385.0

Tire Sales in Korea | Unit: KRW in billions Portion of Total Sales | As of 2018 Tire Sales in China | Unit: KRW in billions Portion of Total Sales | As of 2018

Korea China The domestic automobile market manufactured In 2018, Kumho Tire’s domestic sales fell by 6.3 percent to KRW 890.6 Automobile manufacturing and sales both de- Kumho Tire suffered a 21.9 percent year-on-year decline in sales to a total of 4,029,000 cars in 2018. This contraction for a third straight billion from the previous year. This can be explained by the sluggish creased in 2018 from the previous year in China, recording the first KRW 266.3 billion in the Chinese market for 2018. The company suf- year could be attributed to the reduced growth in major car mar- performance of local automakers and the resultant decline in the contraction in 28 years since 1990. Specifically, the intensifying fered from the consequences of a radical contraction in the Chinese kets worldwide, GM Korea’s Gunsan plant shutdown, and increased amount of orders and supplies, coupled with rising costs stemming trade war against the U.S. in the latter half of the year resulted in a auto market. Kumho Tire is now searching for various solutions to sales of imported cars. RV and SUV sales grew by 10.7 percent, from from the surging price of raw materials. 4.2 percent drop in production to 27.81 million cars and a 2.8 per- normalize its business, such as reducing production volume and re- 544,906 cars in 2017 to 603,066 cars in 2018. In addition, increased Still, Kumho Tire improved profitability, as it was cent fall in sales to 28.08 million cars. The Chinese Association of ducing the number of employees at its plants in Nanjing and Tianjin. sales of full-size cars boosted the change in the vehicle mix. In tan- able to expand the percentage of large-diameter tires to overall sales Automobile Manufacturers (CAAM) projected a negative outlook for For the coming year, Kumho Tire seeks a break- dem with the global trend of intensifying environmental regulations by 4.1 percent from the previous year, while also maintaining replace- future market developments. This outlook was not ungrounded, as through in the Chinese market by taking advantage of its synergies on automobiles, eco-friendly models—electric vehicles, plug-in hy- ment equipment (RE) sales at the same level as the previous year automobile sales in China declined by 15.8 percent from the previ- with Doublestar. We can not only tap into the 4,500 distribution brid vehicles, and fuel-cell electric vehicles—expanded their market despite the shrinking original equipment (OE) supply volume. Fur- ous year to 2.37 million cars in January 2019. The slowing Chinese channels of Doublestar in China, but also save costs through the share by 26.6 percent, from 97,435 units in 2017 to 123,387 units in thermore, the company increased its domestic market share to 40.6 market, which accounts for 30 percent of the global auto market, is joint purchase of raw materials as well as improved logistics ex- 2018. As a result, market demand is expected to increase for electric percent, sustaining its market leading position for a second year in a forecast to impact not only the auto industry but also the tire and penses. vehicle tires, as well as for profitable large-diameter and high-per- row. other auto parts industries. formance tires.

KUMHO TIRE ANNUAL REPORT 2018 22 KUMHO TIRE ANNUAL REPORT 2018 23 THE NAME YOU CAN TRUST CEO MESSAGE THE ROAD TO RESILIENCE MARKETING STRATEGY SOCIAL RESPONSIBILITY NEWS HIGHLIGHTS VISION AND STRATEGY MOTOR SPORTS BUSINESS ETHICS FINANCIAL HIGHLIGHTS TECHNOLOGY LEADERSHIP GLOBAL MARKETING SOCIAL COMMITMENT BUSINESS REVIEW RESEARCH AND DEVELOPMENT ENVIRONMENTAL MANAGEMENT BRAND PORTFOLIO

North America Europe

2018 614.2 2018 322.8

648.3 2018 399.3 2018 2017 24.0% 2017 12.6%

2016 641.0 2016 398.7

Tire Sales in North America | Unit: KRW in billions Portion of Total Sales | As of 2018 Tire Sales in Europe | Unit: KRW in billions Portion of Total Sales | As of 2018

North America Europe The U.S. auto market continued its recession in Kumho Tire’s sales contracted by 5.3 percent from the previous year The European automobile market recorded the In 2018, Kumho Tire’s sales stood at KRW 322.8 billion, down by 19.2 2018, as manufacturing and sales growth were both at anemic levels to KRW 614.2 billion in the North American market in 2018. Although first contraction in five years, selling 15.62 million cars in 2018—a percent year on year, in the European market. This was a result of compared to the previous year. Automobile manufacturing was up 1 its RE sales stabilized and large-diameter product sales increased by 0.04 percent drop from the previous year. The decline was partial- the company’s challenging situation throughout the year, when its percent to reach 11.31 million units with a 0.6 percent year-on-year four percent, the 10 percent decrease in OE sales dampened overall ly influenced by the implementation of the Worldwide Harmonized sales network was hit hard by lagging company sales coupled with growth in sales, which stood at 17.33 million units in 2018. Despite sales. It is important to secure a new supply line as a breakthrough Light-duty vehicle Test Procedure (WLTP) that took effect as of Sep- plunging RE sales in a sluggish market. the mediocre change in the numbers, however, the market portfo- to the continued impact of the discontinuation of automobile mod- tember 2017. The market slowdown is projected to continue for the Kumho Tire was still able to partially improve lio is quickly shifting in its mix. As the preference of U.S. consumers els featuring Kumho OE tires. time being, as the U.S. is trying to implement a 25 percent tariff on its profitability by raising its product price by an average of 7 to 10 is heavily inclined to larger multi-purpose vehicles like crossovers, Kumho Tire is considering ways to normalize automobiles manufactured in Europe on top of the slowing Chinese percent. Going forward, the company plans to restructure the sales SUVs and pickup trucks, major carmakers such as General Motors, the operation of its Georgia plant, which is suffering from a falling economy and Brexit. In tandem with the rising public recognition network to recover RE sales and increase new supply lines on the Ford and Volkswagen are discontinuing development and produc- operation ratio stemming from falling OE orders and losses from ini- of environmental issues, the percentage of eco-friendly vehicles is strength of its advanced technologies. tion of compact cars. Accordingly, the competition in the tire market tial expenses of the newly built plant. We will also strive to enhance quickly taking over a significant portion of the market. According is intensifying to increase the share of large-diameter/high-perfor- profitability by increasing the supply of large-diameter/high-perfor- to the European Automobile Manufacturers Association (ACEA), ap- mance products. mance tires in response to the shifting mix with the rising demand proximately 201,000 electric-only vehicles were registered with au- for SUVs and pickup trucks even during this current sluggish auto thorities in 2018 alone, up 48.2 percent from the previous year. market. KUMHO TIRE ANNUAL REPORT 2018 24 KUMHO TIRE ANNUAL REPORT 2018 25 1

In 2018, Kumho Tire announced its new vision, “A Trusted Brand,” and began paving the way for a full turnaround. In fact, the company had a productive year when it signed back-to-back THE ROAD TO contracts for new model OE supplies with major global automakers and became the first Korean tiremaker to transfer technology to a foreign partner. Furthermore, we have revamped our product portfolios and distribution network while increasing technology R&D efforts.

RESILIENCE 28 Vision and Strategy 30 Technology Leadership 32 Research and Development 34 Brand Portfolio THE NAME YOU CAN TRUST CEO MESSAGE THE ROAD TO RESILIENCE MARKETING STRATEGY SOCIAL RESPONSIBILITY NEWS HIGHLIGHTS VISION AND STRATEGY MOTOR SPORTS BUSINESS ETHICS FINANCIAL HIGHLIGHTS TECHNOLOGY LEADERSHIP GLOBAL MARKETING SOCIAL COMMITMENT BUSINESS REVIEW RESEARCH AND DEVELOPMENT ENVIRONMENTAL MANAGEMENT Kumho Tire’s management goal for 2019 is paving the BRAND PORTFOLIO VISION AND way to make a turnaround to profits. To that end, the entire company will enhance profitability and STRATEGY focus on fundamentals that exceed market demand in quality and technology to regain customer trust.

Goal Goal Vision Vision Paving the way for a Paving the way for a A Trusted Brand A Trusted Brand Vision and Mission Corporate Strategy turnaround to proﬁts turnaround to proﬁts

P P t t

r r s s o o u u ﬁ ﬁ r r T T t t f f I I m m o o Mission Mission p p n n C o C o r o y i r o y i Customer Value Customer Value o r g t o r g t v p te a v p te a e ora tra r e ora tra r Creator Creator m te S o m te S o t t e s e s n e n e t R t R

Foc als Foc Goal als us on Savingment on Purchase Expenses us on ment Customers / Suppliers Suppliers SVisionuppliers Funda Funda

- Integrated channels of procurement - Establishing a four-month delivery A Trusted Partner A Trusted Partner Paving the way for a Lo Lo ared Gr ca A Trustedared GBrandr ca for cost-saving measures time estimation practice s for Sh owth l C s for Sh owth l C turnaround to proﬁts er o er o Co m Co m m e L nt m m e L nt m - Joint purchase with Doublestar - Shared growth with strategic partners o l o r o l o r P st b ca ib u st b ca ib u t ia e l u ia e l u s u el m De t nu el m De t n r C a in Ci a in i - Saving on facility and materialso - Establishingu an integrated pricing R N ve g ti R N ve g ti A d lo t eA d lo t e ﬁ r n p o s n p o s T ra m ra m expenses t Enhancing Quality Competitiveness scheme f B e B e I n n m o t Mission t - Receiving high scores from external raters - Expanding supply lines to global p n Saving on Logistics Expenses C o r y i o (ADAC/o Consumer Reports/ J.D. Power/ automakers Customer Value r g t v p te a - Public bidding for Korean suppliers’ o a e ra tr r Creator Auto Bild) te S S S m o t h h and copy-based contracting e Employeess s s A A e ion o a ion o a n - Enhanced performance in major quality e it f e it f in T S r in T S r t R

e f r e u e f r u e - Change of agreements on cargo - Increasing wages and introducing s e u s B e u B y e s y e s h s s h indexes (OE ratio, quality claim ratio, and t t u t u t c D t c D t o a o a s a o s a o l a l a e e i i i i transport to the U.S. market incentives l l n n l n n l p r p r d d standardization rate) p p e a e a G G k k s b e s b e m r m r s s - Shutdown and subleases of overseas - Establishing a work-life balance l r l r o o e e E E F s s oc als W W us o ent plie warehouses Securing Technologiesn Fundam practice within the corporate Sup rs - Implementing initiatives for the advanced A Trusted Partner culture and reinforcing organizational Lo Production Efficiency & ca s for Shared Growth l development of an SLRR Platform and competency r Co e Co m Cost Competitiveness m L n m securing commercialization technology - Establishing harmonious to le oc tri s ab e al bu u - Efficient production management in E E i D n u el am e ti i - Securing PBN performance in response to labor-management relations m m C n R N ve g ti A d lo t e p p n p o s consideration of the operation rate sa m s the EU’s labeling regulation l l r o o Bc e c i n i Strategic Milestone Strategic Milestone y y (centralized production/concentrated Shareholders & Local Communities s t s e e - R&D for next-generation technologies a a e e B B

S S days off) - Turnaround to the black in ordinary o o such as smart and airless tires a a t t t t i i k k - Saving on raw material expenses profits in 2019 s s f f c c a a S a a c Bc B h through an improved manufacturing yield Enhancing Quality Control and R&D - Establishing profit/loss management t s t A i i tion o a i f o P e o Pn T S r r s i r s 2021 2021 n in e e n f in e r u e cipl s e cipl u B - Saving on manufacturing costs Infrastructure systems within each unit s 2019 2019 y e s h t D u t c t o a s a o l a e l i i - Early dispatch of researchers - Improving the financial consolidation n n l p r d KRW 3 trillion in Sales KRW 3 trillion in Sales p e a G k s b eTurnaround for Ordinary Profits Turnaround for Ordinary Profits m r s - Education on quality for employees of all l r process E o e KRW 300 billion in Operating Profit KRW 300 billion in Operating Profit s M n W M n job classes and fostering experts - Establishing an internal accounting ar tio ar tio ke ra ke ra t-o e t-o e rie Gen rie Gen control system nte ofit nte ofit d Pr d Pr

s l o c i Strategic Milestone y s e a e B

S o a t t i k s f c a a c B t io P n rinciples 2021 2019

KRW 3 trillion in Sales Turnaround for Ordinary Proﬁts KRW 300 billion in Operating Proﬁt

M n ar tio ke ra t-o e rie Gen nte oﬁt d Pr

KUMHO TIRE ANNUAL REPORT 2018 28 KUMHO TIRE ANNUAL REPORT 2018 29 THE NAME YOU CAN TRUST CEO MESSAGE THE ROAD TO RESILIENCE MARKETING STRATEGY SOCIAL RESPONSIBILITY NEWS HIGHLIGHTS VISION AND STRATEGY MOTOR SPORTS BUSINESS ETHICS FINANCIAL HIGHLIGHTS TECHNOLOGY LEADERSHIP GLOBAL MARKETING SOCIAL COMMITMENT BUSINESS REVIEW RESEARCH AND DEVELOPMENT ENVIRONMENTAL MANAGEMENT TECHNOLOGY BRAND PORTFOLIO LEADERSHIP

Customer Value Maximizer Despite challenging circumstances, Kumho Tire’s technology leadership remained intact. Recipient of Four Major Design Awards Kumho Tire won the world’s four major design awards (Germany’s Kumho Tire’s current market position as a global leader owes much The company signed new OE supply agreements with major global automakers, including BMW, iF and Red-Dot, International Design Excellence Awards (IDEA) in the to the tireless efforts of its employees as well as the trust that it has Volkswagen, and Mercedes-Benz. More importantly, it became the first Korean tiremaker to export its U.S., and the Japanese Good Design Awards) again in 2018. The ac- earned from customers. Kumho Tire’s commitment to providing bet- tire manufacturing technology through a technology transfer agreement with a Pakistani tiremaker, colades from these four major design awards recognize not only the ter product quality to consumers remained intact against all challeng- Century Engineering Industries. The four global major design award accolades of Kumho’s design company’s tire designs, but also its advanced technology in perfor- es, and it was highly recognized by several corporate evaluation gaug- accomplishments also continued in 2018. mance and stability of tires. es organized by Korea Management Association Consulting (KMAC), Forbes Korea, and Korea Internet Communication Association (KI- Global Design Awards Received in 2018 COA). ■ iF Award (Germany), transport equipment category | BON ■ Red-Dot Award (Germany) | Wattrun VS31 Corporate Evaluation & Service-related Awards Received in 2018 Global OE Partners Global Prestige Car Brands ■ Good Design Award (Japan), product design category | Wintercraft WP72 ■ Kumho Tire maintains OE partnerships with global automakers such with Kumho Tires Ranked No. 1 in the automotive tire category by KMAC’s Korean Net as Hyundai Motor Group (Hyundai Motor and Kia Motors), Volkswagen In 2018, Kumho Tire entered into three new OE supply agreements Promoter Score (KNPS) for the eleventh straight year (2008-2018) ■ (Volkswagen, Audi, Skoda), Daimler (Mercedes-Benz), BMW (BMW/ with leading global automakers. The agreements include not only TIRE PRO ranked No. 1 in the tire store category by KMAC’s Korea Sales Service Satisfaction Index (KSSI) for the fifth year in a row (2014-2018) Mini), Renault-Nissan (Renault Samsung, Nissan, Renault), and GM high-demand profitable large-diameter tires, but also high technol- ■ Korea Best Brand Award in the tire category by Forbes Korea for seven (GM Korea). In addition, the company is recognized for its technolog- ogy-intensive high-performance tires, quelling any concern over its consecutive years (2012-2018) ical prowess as it expands its share of high-performance tires in Eu- product quality. ■ Winner of the car and aircraft parts category at the Korea Internet rope and the U.S., which is the world’s largest premium tire market. The Crugen Premium KL33 features the Atlas, the first full-size SUV Communication Association’s Korea Social Media Awards (2018) from Volkswagen, with room for seven. The German automaker is manufacturing its largest-ever SUV model in the U.S., where big SUVs are popular, to be sold in North America, Central America, Russia, and the Middle East.

Kumho is also supplying the ECSTA PS91, an ultra-high performance VOLKSWAGEN ATLAS tire, for BMW’s flagship sedan 5 Series (G3). The BMW 5 Series is BMW’s signature model and has sold over 10 million cars since its launch in 1972.

Kumho’s best-selling tire, the Solus KL21, runs on the Mercedes-Benz’s 2019 new model, the New G-Class. Since Kumho’s first OE supply of tires for Mercedes-Benz’s A-Class models in 2007, the two companies have maintained a partnership with diverse models, including trucks, vans and SUVs, for more than a decade.

New OE Supply Agreements in 2018

■ Crugen KL33 | Volkswagen Atlas BMW 5 SERIES ■ ECSTA PS91 | BMW 5 Series (G30) ■ SOLUS KL21 | Mercedes-Benz New G-Class

BMW NEW X3

KUMHO TIRE ANNUAL REPORT 2018 30 KUMHO TIRE ANNUAL REPORT 2018 31 THE NAME YOU CAN TRUST CEO MESSAGE THE ROAD TO RESILIENCE MARKETING STRATEGY SOCIAL RESPONSIBILITY NEWS HIGHLIGHTS VISION AND STRATEGY MOTOR SPORTS BUSINESS ETHICS FINANCIAL HIGHLIGHTS TECHNOLOGY LEADERSHIP GLOBAL MARKETING SOCIAL COMMITMENT BUSINESS REVIEW RESEARCH AND DEVELOPMENT ENVIRONMENTAL MANAGEMENT RESEARCH AND BRAND PORTFOLIO

DEVELOPMENT Hybrid Tire Various types of tires are currently under development in the in- Accordingly, hybrid tires have significantly enhanced the perfor- dustry to solve puncture issues because they undermine driving mances of puncture-resistance, noise and vibration, and rolling-re- Today, the maturing global automobile market is entering into a stability. These include run-flats, sealants, and airless tires. Airless sistance comparable to those of pneumatic tires. The enhanced per- new era of future mobility in a low-growth era. In meeting this reality, tires, however, demonstrate flaws with regard to noise and vibra- formance makes the hybrid tires the perfect fit for electric vehicles competition for innovation is intensifying among global tiremakers to take tion at high speeds. Its transversely-penetrated structure inevitably and self-driving cars. Thus, Kumho Tire is pre-emptively responding the lead in the new market. Kumho Tire is also preparing for the future compromises the uniformity to the direction of the circumference, to the rapid changes in the tire market through consistent R&D ef- through continuous research and development activities. which leads to noise and vibration on high-speed drives. forts for future tire technologies.

In fact, Kumho Tire became the world’s first company to effectively address punctures, noise and vibration issues at the same time with the successful development of a hybrid tire. Also known as a semi-pneumatic tire, these hybrid tires have pneumatic cases inside to which non-pneumatic spokes and treads are attached outside. As a result, these tires sustain the strength of both pneumatic and non-pneumatic tires, meaning smooth, silent driving of the former Airless Tire and puncture-resistance of the latter. Pneumatic tires can be vulnerable to accidents if they go flat on the In anticipation of a paradigm shift to electric vehicles and self-driv- road. In addressing this issue, Kumho Tire has developed airless ing cars, Kumho Tire is also developing airless tires for high-speed tires that can go without air pressure. They are made of regenera- passenger cars that smartly integrates the strengths of pneumatic ble eco-friendly materials, and built in a strong structure for a high- tires. Going forward, Kumho Tire will continue to play a leading role speed drive. in the future tire market with its experienced technological know- how and innovative ideas. Kumho Tire has filed a patent for this technology with international authorities after its airless tires passed a speed test of 140km/h. These tires not only offer safety and convenience to drivers, but they are also eco-friendly and manufacture-friendly. Through constant improvements in performance, they will be able to become the future of tires, replacing present-day air tires.

KUMHO TIRE ANNUAL REPORT 2018 32 KUMHO TIRE ANNUAL REPORT 2018 33 THE NAME YOU CAN TRUST CEO MESSAGE THE ROAD TO RESILIENCE MARKETING STRATEGY SOCIAL RESPONSIBILITY NEWS HIGHLIGHTS VISION AND STRATEGY MOTOR SPORTS BUSINESS ETHICS FINANCIAL HIGHLIGHTS TECHNOLOGY LEADERSHIP GLOBAL MARKETING SOCIAL COMMITMENT BUSINESS REVIEW RESEARCH AND DEVELOPMENT ENVIRONMENTAL MANAGEMENT BRAND BRAND PORTFOLIO

PORTFOLIO No. of TIRE PRO stores in Korea stores (as of 2019)

Kumho’s TIRE PRO—the nation’s first tire-specialized distribution brand—topped Korea Management Association Consulting’s customer 560 satisfaction surveys in the category of sales service for a fifth straight year in 2018. After introducing consumers to customized consulting and standardized consumer reception procedures with specialized equipment, TIRE PRO now operates 560 shops nationwide as of 2019. It has been at the forefront of the popularization of tire-specialized repair shops on the back of on-site offerings of upscale service and advertisements on diverse on/off-line media, including TV commercials.

An Unrelenting Revolution Training Experts to Enhance in TIRE PRO Service the Quality of Service TIRE PRO invests in customer service as much as Behind the high level of services offered by TIRE product quality in order to swiftly respond to quickly evolving mar- PRO are our skillful professionals. They are trained at our Sales Train- ket demand and customer expectations. In fact, its industry-leading ing Center, which was built in 2013, and was the first of its kind in customer convenience and customer service is now available online the industry. The Sales Training Center educates store owners and as well as through its offline outlets. Customers can now make res- employees through technician courses that are available at different ervations for service at TIRE PRO shops or buy tires online through levels, along with sales manuals and practical training for distribution its official website and mobile app. The brand also offers service store managers. through the open market platform The 11th Street. The university-industry cooperation program that Today, customers can also apply for the One Plus began in 2016 to recruit graduates of automobile engineering de- One insurance policy at any TIRE PRO shop. TIRE PRO introduced partments not only fosters skillful experts but also helps address the it last year in partnership with Lotte Insurance to raise customer shortage of human resources at TIRE PRO stores. Starting with the first awareness of road safety, such as tire punctures on the road and slip- graduates in 2016, a total of 40 talented graduates have completed people pery road accidents. Through the partnership, TIRE PRO subsidizes training courses to become TIRE PRO members up until 2018. both insurance premiums and tire replacement bills for customers At the same time, TIRE PRO strives to increase ex- who purchase the insurance policy after buying four tires from any of pertise in imported cars. Currently in place is an Imported Car Expert

41No. of employees who were employed at TIRE PRO Kumho’s premium tire brands—Majesty Solus 9, Solus TA31, or Cru- Course helping people to better understand imported cars, engine through the university-industry cooperation program gen HP91/HP71). They can claim the benefits when they revisit the oils, and tire issues requiring precautions. In order to enhance TIRE (2016-2018) shop later to repair tires damaged while driving. PRO’s responsiveness to imported cars from different automakers, On top of regular promotion campaigns for cus- the company offers special training programs on imported car brands tomers who visit TIRE PRO shops, TIRE PRO plans to seek more busi- with a high market share in Korea. After completion of the course, TIRE ness alliances with SK Syrup and Shell Korea to offer more diverse PRO stores are granted with brand identity (BI) certificates as specialty customer benefits and services. stores for imported cars, thereby marketing their expertise and credibility to customers. KUMHO TIRE ANNUAL REPORT 2018 34 KUMHO TIRE ANNUAL REPORT 2018 35 THE NAME YOU CAN TRUST CEO MESSAGE THE ROAD TO RESILIENCE MARKETING STRATEGY SOCIAL RESPONSIBILITY NEWS HIGHLIGHTS VISION AND STRATEGY MOTOR SPORTS BUSINESS ETHICS FINANCIAL HIGHLIGHTS TECHNOLOGY LEADERSHIP GLOBAL MARKETING SOCIAL COMMITMENT BUSINESS REVIEW RESEARCH AND DEVELOPMENT ENVIRONMENTAL MANAGEMENT BRAND PORTFOLIO

Kumho Tire’s diversified product portfolio offers a safe and comfortable driving experience in all circumstances, while also being tailored to the various needs of different car types and driving conditions. From ultra-high performance tires whose advanced technologies are validated at motor sports tournaments to eco-friendly tires in consideration of sustainable growth, the company rolls out products that meet different market needs, living up to people’s highest expectations.

1 2 3 7 8

Premium comfort tires that offer a quieter and Fuel-efficient tires made of new compound Economy tires that offer satisfactory Tires made for premium SUVs offering Ultra-high performance sports tires demonstrating more comfortable ride than ordinary tires materials utilizing highly advanced, eco- performance at reasonable prices for drivers the best ride and stability & control on paved stable handling performance during high-speed friendly technologies seeking good bargains roads driving based on formula technology TA91/TA71/TA31/TA11/HA31/HS61 KH27/ES31 KR26/KL26/SE11 HP91/HP71/KL33/HT51 PS91/PS71/V720/HS51/PS31/PA51/PA31/HS81

4 5 6 9 10

EV-specialized tires optimized for energy Classic SUV-specialized tires that can run on Tires for light commercial vehicles (LCVs) with Premium winter tires that offer safe driving on Tires optimized for taxis that offer high efficiency and the characteristics of EVs all terrains both on and off-road excellent durability for any road conditions snowy and icy roads mileage and durability performance

VA31/VS31 AT51/AT61/MT51/KL71 KC53/KC55 WP72/WP71/WP51/Wi31/WS31/Wi61/ KR25/TX31 WS61/WS71/WS51

4 6

3 5 9

1 7

KUMHO TIRE ANNUAL REPORT 2018 36 KUMHO TIRE ANNUAL REPORT 2018 37 2

Kumho Tire’s contact points with consumers are spread among diverse channels to enhance its brand value amid the cutthroat competition between global tiremakers. The company especially MARKETING excels in motor sports—proof of its technological prowess. Last year, Kumho extended its sponsorship duration with Tottenham Hotspur F.C., where Korean star Son Heung-min plays, for three years, helping the company significantly enhance its brand awareness and credibility.

STRATEGY 40 Motor Sports 42 Global Marketing THE NAME YOU CAN TRUST CEO MESSAGE THE ROAD TO RESILIENCE MARKETING STRATEGY SOCIAL RESPONSIBILITY NEWS HIGHLIGHTS VISION AND STRATEGY MOTOR SPORTS BUSINESS ETHICS FINANCIAL HIGHLIGHTS TECHNOLOGY LEADERSHIP GLOBAL MARKETING SOCIAL COMMITMENT BUSINESS REVIEW RESEARCH AND DEVELOPMENT ENVIRONMENTAL MANAGEMENT BRAND PORTFOLIO MOTOR SPORTS

Kumho Tire’s advanced technologies are widely recognized in Europe, China and Australia through several motor sports championships around the world that require cutting-edge technologies. Its ultimate goal is to become an official sponsor for Formula 1. In 2018, the company became the official tire sponsor for Korea’s largest amateur motor sports competition, the ECSTA Super Challenge, and the Hyundai Motor Company’s Avante Cup Series.

Korea’s Best ECSTA Racing Team With Kumho Tire’s full support, and backed up by the company’s technological prowess, the ECSTA Racing Team finished second in the Cadillac 6000 Class, the top class of the CJ Logistics Super Race Championship—Korea’s largest motor sports event—in

2018. 3 Led by race car coach Kim Jin-Pyo, the ECSTA Racing Momentous Accomplishments 4 team is a successful team starring the superstar driver Ide Ryuji, a at Domestic Events 1 Japanese driver from the Formula 1 and champion of the Japanese Kumho Tire became the official tire sponsor to Ko- 2 Super GT 500 championship, and Jung Eui-Chul, the 2016 season rea’s largest amateur motor sports competition, the ECSTA Super champion. The team’s inspiring spirit and technical know-how en- Challenge, and the Avante Cup Series—a one-make race hosted by Global motor sports participation (as of 2018) sured overall victory for two straight years (2015 and 2016) and the Hyundai Motor Company in 2018. Sponsorship of the nation’s larg- 1 double championship in 2016. It was also the runner-up in the 2017- est amateur motor sports event helped the company boost its brand Korea | CJ Logistics Super Race: Cadillac 6000 Class 2018 season, living up to its name as the nation’s leading racing recognition, while also carrying out marketing initiatives based on | ECSTA Super Challenge / Hyundai Motor Company’s Avante Cup team. the excellence of its ECSTA line products. Furthermore, the compa- 5 2 Going forward, the team will continue collaborating ny continued on-/off-line PR campaigns with motor sports opinion China | China Touring Car Championship (CTCC) | China FIA F4 with the company’s R&D Center on maximizing tire performance leaders to increase its sales of high-performance tire products. 3 UK | BMW Challenge with the aim of achieving even better results at motor sports events. In the future, Kumho Tire will continue with diverse 4 The team will also be at the forefront of the company’s marketing campaigns through these sponsorships to enhance the sale of France | French Autocross / French F4 5 campaigns to further its brand recognition and promote the devel- high-performance tires and brand awareness as it seeks coopera- Australia | Aussie Car Racing opment of Korean motor sports. tive marketing opportunities with automakers. | V8 touring

KUMHO TIRE ANNUAL REPORT 2018 40 KUMHO TIRE ANNUAL REPORT 2018 41 THE NAME YOU CAN TRUST CEO MESSAGE THE ROAD TO RESILIENCE MARKETING STRATEGY SOCIAL RESPONSIBILITY NEWS HIGHLIGHTS VISION AND STRATEGY MOTOR SPORTS BUSINESS ETHICS FINANCIAL HIGHLIGHTS TECHNOLOGY LEADERSHIP GLOBAL MARKETING SOCIAL COMMITMENT BUSINESS REVIEW RESEARCH AND DEVELOPMENT ENVIRONMENTAL MANAGEMENT BRAND PORTFOLIO GLOBAL Kumho Tire is involved with the world in various ways: motor sports, sports marketing, distributional channel Korea U.S. increases, media advertising, and participation in

exhibitions. Kumho Tire fine-tunes its marketing approach Professional Baseball Marketing Sponsoring the NBA MAR- to meet the different local needs of the U.S., Europe In the domestic market, Kumho Tire channels its marketing re- In North America, Kumho Tire focuses its sports marketing on bas- and China, as well as emerging markets and developing sources into professional baseball, one of the most popular sports ketball. It has been a constant sponsor of one of the league’s top in Korea. The company has been sponsoring uniforms for the Kia teams, the LA Lakers, for years. In 2014, it signed an official spon- countries in Southeast Asia and Africa. Its aggressive Tigers and advertising its products at the Lotte Giants home stadi- sorship agreement with the NBA and has expanded its marketing KETING marketing campaigns cater to unique needs, while um, as they are known to have the most ardent supporters among target to the entire league. Recently, the company entered into enhancing brand awareness and customer trust in the the 10 professional teams in Korea. These marketing activities have partnerships with the Atlanta Hawks and Charlotte Hornets—NBA product quality of Kumho Tire. helped the company establish a young and dynamic brand image. teams based in cities where Kumho Tire’s American subsidiaries When its long-time partner Kia Tigers finished first in the 2017 reg- are located. This approach helps the company come closer with ular season and won the KBO League championship, Kumho Tire local residents along with its continued advertisement campaigns. hosted a variety of special events to celebrate the victory. Associate Dealer Program

Number of people at Korean Kumho Tire hosts the Premium Fuel Program—the most influential professional baseball games in 2018 associate dealer program in the U.S.—making use of this oppor- tunity to strengthen its brand competitiveness in connecting consumers, retail stores and wholesalers, while enhancing its service 80.7million people quality for general business partners. Europe Europe

Kumho Tire’s NBA sponsorship Professional Football Partnership North America agreements since Kumho Tire extended its partnership to the 2020-2021 season with Korea Tottenham Hotspur F.C., where Korean star player Son Heung-min China recently extended his contract in 2018. Created in 1882, the English 2014 Premier League team Tottenham Hotspur F.C. is one of the most successful teams every year, boasting more than 160 official supporters’ clubs and over 400 million fans worldwide.

The English Premier League is one of the world’s most popular sports leagues and has enormous commercial value, with its annual broad- China cast fees amounting to £5.1 billion. Kumho Tire also sponsored Man-

chester United, where Ji Sung Park played, from 2007 to 2011. More Australia Australia Sponsoring China’s Top Motor Sports Series Emerging Countries recently, its partnership with Tottenham is adding youth and dyna- Kumho Tire is setting the stage for emerging as the leader in the mism to its corporate image for global soccer fans. Expanding Platinum Shops Chinese motor sports world through sponsorships of the nation’s Enhancing Brand Awareness in the World Additionally, the company has been increasing its marketing cam- Since the foundation of its local subsidiary in Australia in 1988, top motor sports championships. The China Touring Car Champi- Kumho Tire engages in proactive marketing activities in major mar- paigns in the European sports world. For instance, it ran advertise- Kumho Tire has built a stable retail channel network. We have onship (CTCC) is the country’s top-level touring car championship, kets throughout Asia, Latin America, the Middle East, and Africa to en- ments at the home pitches of several renowned European sports focused on increasing the number of platinum dealers that have and officially authorized by the Federation Internationale de l’Au- hance brand awareness and sales. While expanding brand exposure to teams, including the Bundesliga’s Hamburg SV and SK Rapid Vin of high brand loyalty. Numbering 81 shops as of 2018, they will play a tomobile (FIA) and the Federation of Automobile Sports of the Peo- consumers through outdoor signboards in the Middle East and Africa, Austria in 2011, Bundesliga’s FC Schalke 04 and Hertha BSC Berlin, pivotal role in the company’s plans for more rapid growth. In a bid ples Republic of China (FASC). Kumho Tire has been the official tire including Turkey, Iran, Saudi Arabia, and the Republic of South Afri- Real Madrid and FC Barcelona of Spain’s Primera Liga in 2015. In 2016, to enhance its service quality, Kumho Tire is localizing its domestic sponsor of this event for six consecutive years (2013-2018), where ca, the company is raising its brand value in Latin American countries the company signed a partnership agreement with the Olympique Ly- sales knowhow for the Australian market, with separate training it has displayed the advanced technology of the ECSTA S700 and such as Brazil, Columbia, and Chile through media advertisements on onnais of France Ligue 1. programs and conferences for dealers. W700/701 models. TV, radio, and in magazines.

No. of global viewers of No. of platinum shops Sponsor of the CTCC No. of countries the Premier League in 2018 with a Kumho Tire presence

6 consecutive years 1 billion people 81 over 180 countries

KUMHO TIRE ANNUAL REPORT 2018 42 KUMHO TIRE ANNUAL REPORT 2018 43 3

As a responsible corporate citizen, Kumho Tire remained active in sustainability management initiatives in its business ethics and environmental management, as well as its social SOCIAL contribution programs, in 2018. We raised the bar for a higher level of business ethics practices, while our employees participated in diverse social contribution programs. In addition, we continued our investments in reducing GHG emissions and energy use as part of environmental management practices. RESPONSIBILITY 46 Business Ethics 48 Social Commitment 50 Environmental Management THE NAME YOU CAN TRUST CEO MESSAGE THE ROAD TO RESILIENCE MARKETING STRATEGY SOCIAL RESPONSIBILITY NEWS HIGHLIGHTS VISION AND STRATEGY MOTOR SPORTS BUSINESS ETHICS FINANCIAL HIGHLIGHTS TECHNOLOGY LEADERSHIP GLOBAL MARKETING SOCIAL COMMITMENT BUSINESS REVIEW RESEARCH AND DEVELOPMENT ENVIRONMENTAL MANAGEMENT At Kumho Tire, business ethics means implementing business BRAND PORTFOLIO BUSINESS decisions in light of our ethical responsibility beyond just legal compliance. To that end, every business decision and practice at Kumho tire is made ETHICS in line with our corporate social responsibility. We believe that our prudent business practices contribute to a better society.

Upgrading Our Ethical Management System System and Organizational Activities Kumho Tire is upgrading its ethical management system in conformity with our business In line with these business ethics strategies, Kumho Tire set up a Business Ethics Com- ethics strategies. The focus lies on raising employee awareness of job ethics and on reflect- mittee and a Self-Check Group in 2012. These two entities convene regular meetings. ing stakeholders’ expectations of ethics in our business activities and decision-making pro- m They have enacted the company’s detailed regulations, procedures and code of ethics. yste Sys nt S tem cesses. me an Since then, they have constantly updated ethical regulations and declared an official ge d O na rg a an Guided by its in-house business ethics guidelines, the company sets its busi- l M iz code of ethics. They have also provided a self-check list of business ethics practices for ica at th io ness ethics as the guidelines of all business activities. While working on the details of the E na practical application on the job as part of continued reinforcement of business ethics ur l A O ct code of ethics and related regulations, we also provide employees with education on this g iv companywide. in it d ie subject. Furthermore, we support the promotion of business ethics throughout our entire ra s g p supply chain. With corporate social responsibility serving as the guiding principle, Kumho U Tire strives to remain a faithful corporate citizen that honors its promises and can be trusted

in this regard, while also contributing to society by fulfilling its social responsibility.

Kumho Tire’s Business Ethics Scheme

Introduction Establishment Internalization

2002~2004 2005~2008 2009~

▪ ▪ ▪ Audits on assets, Corporate website dedicated to Developing programs for business E n ISO performance indicators man- business ethics ethics practices h a agement ▪Self-consciousness survey ▪Setting up the information security n c Enhancing Employees’ Ethics Awareness ▪ ▪ i Enactment and declaration of code Evaluating the business ethics index management system n g ▪ ▪ Kumho Tire conducts business ethics education sessions annually. In particular, sep- of ethics and regulations Evaluating the asset Linking CSR themes to the E

m management practice index corporate image p arate training on the Fair Trade Act is provided to employees in a bid to prevent le-

▪ ▪ l Evaluating safety and environmen- Proactive responses to the ISO o y gal violations and to promote self-driven compliance. In 2018, the company offered a tal management practices 26000 e

e ▪

Conducting the Beautiful Enterprise s cyber education program on its business ethics to the entire workforce. Additionally,

’

Index assessment t

h separate ethics courses are in place for new employees and employees who are to be

dispatched overseas on the company’s code of ethics and regulations, and on case

A w

a studies about how to deal with corruption issues.

Business Ethics Programs r e n

Transparent Contracting Procedures e s Kumho Tire established its Clean Contracting Practices as a sign of its commitment to the s company-wide practice of business ethics. The program assists Kumho employees with transparent and fair procedures of bidding, contracting, and fulfillment of all contracts.

Addressing the Practice of Monetary Tokens of Courtesy Kumho employees are discouraged from sharing personal information with suppliers in order to discourage any form of bribery. In cases of receiving money out of courtesy, the amount should not exceed the socially acceptable level, as long as it is not against the estab- n io t lished social customs of highly valuing mutual help. p u Cyber Whistleblower & Rewards Programs r r o for Anti-Corruption -C Checking on Retirees Removing Corporate Assets ti n In order to eliminate at the source any unfairness or unethical practices in work pro- B A In a bid to prevent any leakage of trade secrets and to avert losses to the assets of the com- u r s fo in s cesses, Kumho Tire has a separate webpage dedicated to whistleblowing. The compa- e pany, Kumho Tire has a department to check the list of items that retirees take out as they s am s r Et og ny has also established a whistleblower protection program. For instance, reporters leave the company. hi Pr cs s P rd and whistleblowers are protected anonymously. They can file a report in any form of ro a g ew ram R Happy National Holidays Free of Briberies s r & their convenience, choosing from the intranet, e-mail, phone, fax, mail, or the Cyber we blo In order to enhance our corporate image and business ethics awareness, Kumho Tire con- istle Whistleblowing page. For overseas operations, we also have localized webpages in r Wh Cybe ducts annual campaigns strictly banning any form of accepting gifts or monetary offerings multiple languages, while quarterly notifications encourage reports through the in- from suppliers. During the campaign, the company opens a separate center for self-report- tranet system. For more effective detection and reinforced internal control, we have ing gifts and sends official letters to suppliers asking for their cooperation and participation also enacted bylaws with regard to the rewards and treatments of reporters and whis- in its business ethics efforts. tleblowers, offering monetary rewards of up to KRW 1 billion.

KUMHO TIRE ANNUAL REPORT 2018 46 KUMHO TIRE ANNUAL REPORT 2018 47 THE NAME YOU CAN TRUST CEO MESSAGE THE ROAD TO RESILIENCE MARKETING STRATEGY SOCIAL RESPONSIBILITY NEWS HIGHLIGHTS VISION AND STRATEGY MOTOR SPORTS BUSINESS ETHICS FINANCIAL HIGHLIGHTS TECHNOLOGY LEADERSHIP GLOBAL MARKETING SOCIAL COMMITMENT BUSINESS REVIEW Size of carbon offset forestation(2018) RESEARCH AND DEVELOPMENT ENVIRONMENTAL MANAGEMENT SOCIAL BRAND PORTFOLIO 6,000㎡

COMMITMENT For The Environment No. of beneficiary children For Neighborhood who were presented with gifts by the Kumho Tire is an ardent supporter of the in- Fellowship of Santa(2018) Kumho Tire continues to reach out to under- Kumho Tire is mindful of many different areas when ternational effort to slow global warming, in which 147 countries privileged people and financially distressed families in various around the world have pledged to join the carbon reduction ini- ways. Since 2013, it has been sponsoring social activities for those it comes to being a faithful corporate citizen in its social 50people tiative. Since 2015, Kumho Tire has been creating forests to offset with severe disabilities. It also began the Fellowship of Santa pro- responsibility. While lending its business acumen to carbon emissions at the base of Mt. Bukhan and Mt. Inwang in gram for the children and teenagers of low-income families and social contribution campaigns, the company always Seoul. local charities in partnership with social welfare centers. The Fel- encourages employee participation. We believe that giving In 2018, a 6,000㎡ forest was created con- lowship of Santa program pays visits to these kids to grant their back to society is one way of returning customer trust sisting of fruit trees, shrubs and seedlings in the vicinity of Mt. Christmas wishes. Kumho Tire will continue to explore new op- in our brand. Bukhan. Entrusted to the municipal government of Seoul to portunities of reaching out to the underprivileged. manage for 30 years, the forest is expected to absorb 203 tons of carbon dioxide during that period. This is equivalent to the car- No. of beneficiaries of the Pink Box Project bon emissions of 18 million disposable cups, or 1.8 disposable (2018) cups per person in Seoul.

180people

Study Room for Hope Project (2016~2018) For Women In addition, Kumho Tire has teamed up with 14 the Child Fund Korea to help marginalized teenage girls grow into stronger women. The Pink Box campaign offers free female For Children’s Education hygiene items to girls who find it difficult to help themselves due Kumho Tire cares about our future gener- to financial hardship and shyness to tell their father or grandpar- ations. In partnership with the Korea Mecenat Association, the ents. The campaign was initiated in 2018 and has sent pink boxes company engages in education programs in order to help our to more than 180 girls. Kumho Tire will continue to assist girls in future leaders grow into responsible citizens who are guided by growing healthy both mentally and physically, as they are the pil- the right values. In 2016, we began organizing a lecture called lars of our future society. “Let Me Find Myself,” which is given by special lecturers who are professionals in arts and culture. We also arrange painting ses- No. of beneficiaries of the Home Country Visit Program sions in prevention of school bullying issues in partnership with (2013~2018) expert agencies and local schools. In cooperation with the NGO Child Fund Ko- 193 people rea and local social welfare centers, we offer safe, pleasant study rooms under the title “Study Room of Hope.” Started in 2016, we For Immigrants No. of beneficiaries of the Love Your Neighbors program have built 14 study rooms as of 2018. In 2019, we plan on com- (2002~2018) Diversity has emerged as an important issue pleting our 20th study room by the end of the year. Our aim is to over the past decade in Korea. In promotion of social awareness instill hope and dreams in the minds of underprivileged children. of diversity throughout society, Kumho Tire has been sponsoring 8,600 people female immigrants with their independence and settlement into

For Communities society. In 2012, the company signed agreements with As a responsible corporate citizen, Kumho the Vietnamese Embassy and the Association of Vietnamese Com- Tire is actively engaged with local communities directly and indi- munities in Korea. Since then, the company has been sponsoring rectly through various programs. Launched in 2002, the Love Your the community’s cultural events and activities as well as sponsor- Neighbors campaign pays visits to senior citizens living alone, ing a Home Country Visit program. From 2013, the program ex- low-income families, disabled people, and charities in Gwangju, panded to planning and supporting homecoming events for mul- Gokseong, and Pyeongtaek, where the company’s worksites are ticultural families. The program helps children from multicultural located. The volunteers offer food and supplies for ancestral rites families better understand and adapt to the history and culture of on traditional holidays every year. Before winter, our employees their parents by visiting Vietnam. also make kimchi for them. KUMHO TIRE ANNUAL REPORT 2018 48 KUMHO TIRE ANNUAL REPORT 2018 49 THE NAME YOU CAN TRUST CEO MESSAGE THE ROAD TO RESILIENCE MARKETING STRATEGY SOCIAL RESPONSIBILITY NEWS HIGHLIGHTS VISION AND STRATEGY MOTOR SPORTS BUSINESS ETHICS FINANCIAL HIGHLIGHTS TECHNOLOGY LEADERSHIP GLOBAL MARKETING SOCIAL COMMITMENT BUSINESS REVIEW RESEARCH AND DEVELOPMENT ENVIRONMENTAL MANAGEMENT ENVIRONMENTAL BRAND PORTFOLIO MANAGEMENT

Green Management Green Production Kumho Tire established an environmental management system by introducing eco-friendly processes to Establishment/Operation of a Global Highly Efficient Eco-friendly Energy realize sustainable growth from the development and Environmental Management System and GHG Reduction Practices production of products to the sales and disposal stages. In order to respond to environmental issues that are becoming in- Kumho Tire reduced greenhouse gas (GHG) emissions and energy The company will firmly establish its status as an creasingly important, the company maintains the ISO 14001 (envi- use using a factory energy management system (FEMS) established eco-friendly company by actively putting its four major ronmental management systems) certificate, and continuously- in at its plants in Korea. Kumho Tire is concentrating on the reduction environmental strategies into practice. vests in facilities to satisfy in-house standards that are much higher of its climate impact and risk management by adopting an emis- than legal requirements. In particular, Kumho Tire pre-emptively sions trading management system and K-GEMS (Kumhotire Green- responds to rigorous environmental regulations and prevents var- house gases Emission Management System) to respond to global ious accidents at worksites through regular in-house verification. issues such as climate change and GHG reduction policies. Further- Through company-wide environmental protection activities, it will more, the company will establish a system for GHG reduction at contribute to local communities outside the company and firmly worksites in China. establish a culture of environmental protection inside the company.

Green Product Green Business

Playing a Leading Role in Developing Green Markets & Eco-friendly Products Business Opportunities Kumho Tire is developing eco-friendly products to reduce its envi- With consumer interest and demand for eco-friendly products grow- ronmental burden throughout the lifecycle of all products based on ing, it is expected that green markets will continuously expand. Kum- single-handedly developed technology. As a result, the company ho Tire has met the demand of the market by releasing green prod- developed the ECOWING (tires with energy efficiency rating level ucts such as the ECOWING (with energy efficiency rating level 1) and 1) and the WATTRUN (tires exclusively for electric vehicles) for the the WATTRUN (exclusively for electric vehicles), and is continuously first time in Korea, and has invested heavily in R&D to respond to developing other eco-friendly products. In addition, by effectively different energy efficiency level systems in many countries around responding to emissions trading, which went into effect in 2015, the the world. It is also developing new materials in order to minimize company will create new opportunities for revenue by securing Cer- hazardous chemical substances in products. Based on the results tified Emissions Reductions and focusing on GHG emissions and its of such efforts, Kumho received the Eco Label from the Korean gov- investments in related facilities. ernment for three more products in 2016, and will continue to work hard to expand its eco-friendly product group.

KUMHO TIRE ANNUAL REPORT 2018 50 KUMHO TIRE ANNUAL REPORT 2018 51 CONSOLIDATED FINANCIAL STATEMENTS

01 Independent Auditor’s Report

(English Translation of a Report Originally Issued in Korean)

To the Board of Directors and Shareholders of Kumho Tire Co., Inc.

Opinion We have audited the accompanying consolidated financial statements of Kumho Tire Co., Inc. and its subsidiaries (collectively referred to as the “Group”) which comprise the consolidated statement of financial position as at December 31, 2018, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then CONSOLIDATED ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of Kumho Tire Co., Inc. and its subsidiaries as at December 31, 2018, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the Republic of FINANCIAL Korea (Korean IFRS). Basis for Opinion We conducted our audit in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further de- scribed in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements of the Republic of Korea that are relevant to our audit of the consolidated STATEMENTS financial statements and we have fulfilled our other ethical responsibilities in accordance with the ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

(1) Impairment assessment for cash generating units

| Key Audit Matter | As disclosed in Note 3 to the consolidated financial statements, the Group performs impairment assessment if there is an indication that its carrying amount of non-financial asset exceeds the amount to be recovered. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the CGUs to which the asset belongs. The Group does not

53 - Independent Auditors’ Report recognize impairment loss because it is determined that the recoverable amount of the CGUs exceeds the book amount as a result of 57 - Consolidated Statements of Financial Position impairment assessment. 59 - Consolidated Statements of Comprehensive Income When performing impairment assessment, determination of CGUs and estimation of future cash flows are made upon management’s 60 - Consolidated Statements of Changes in Equity decision. We considered that impairment assessment for CGUs is a key audit matter given the significant amount of the non-financial 52 - Consolidated Statements of Cash Flows assets and the risk of potential bias in management estimation.

| How our audit addressed the Key Audit Matter | Our audit procedures included the following to address the key audit matter: · We assessed the adequacy of the assets allocated to CGUs defined by management. · We evaluated the qualification and objectivity of external specialists used by management. · We tested the accuracy of the Company’s stock price used in determining net fair value. · We challenged the appropriateness of the future cash flow forecasts used in the estimation of value-in-use with reference to the business plan approved by the management. · We assessed the appropriateness of valuation model used by management for the estimation of recoverable amounts. · We evaluated the reasonableness of key assumptions used in value-in-use.

KUMHO TIRE ANNUAL REPORT 2018 53 THE NAME YOU CAN TRUST CONSOLIDATED FINANCIAL STATEMENTS

(2) Modification of financial liabilities Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material | Key Audit Matter | misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high As disclosed in Note 17 to the consolidated financial statements, terms of certain financial liabilities were modified during the year ended level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect December 31, 2018, and as a result, interest rates of existing borrowings were lowered and maturities were extended. The modified terms a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the may lead to significant changes in profit or loss, and the accounting treatments for various borrowings’ modification may increase the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated risk of incorrect accounting information being recorded. Therefore, we identified modification of terms of financial liabilities as a key financial statements. audit matter. As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional | How our audit addressed the Key Audit Matter | skepticism throughout the audit. We also: Our audit procedures included the following to address the key audit matter: · We inspected documents such as agreements to confirm changes in terms of financial liabilities. · Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design · We reviewed the conformity of the cash flows provided by the Company with the terms in modified loan agreement. and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis · We reviewed whether modified terms meet the requirements that new financial liabilities shall be recognized after derecognition of for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as existing financial liabilities. fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. · We reviewed the reasonableness of the applied market rate in consideration of the Company’s credit rating, collateral and others. · Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Other Matters · Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures The consolidated financial statements of the Group for the year ended December 31, 2017, were audited by another auditor who ex- made by management. pressed an unmodified opinion on those statements on April 9, 2018. · Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report audit such consolidated financial statements may differ from those generally accepted and applied in other countries. to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements cause the Group to cease to continue as a going concern. Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with Korean · Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and wheth- IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial state- er the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. ments that are free from material misstatement, whether due to fraud or error. · Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going the Group audit. We remain solely responsible for our audit opinion. concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

KUMHO TIRE ANNUAL REPORT 2018 54 KUMHO TIRE ANNUAL REPORT 2018 55 THE NAME YOU CAN TRUST CONSOLIDATED FINANCIAL STATEMENTS

02 Consolidated Statements of Financial Position December 31, 2018 and 2017 [in Korean won]

2018 2017 We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and Assets significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Current assets We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding Cash and cash equivalents 271,834,340,316 152,031,383,347 independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. Short-term financial instruments 58,579,124,908 37,604,856,953

Available-for-sale financial assets - 4,480,000 From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in Trade receivables 389,856,081,117 541,210,044,989 our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we Short-term loans and other receivables 13,708,914,418 29,129,394,290 determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be Inventories 458,636,318,506 546,974,201,655 expected to outweigh the public interest benefits of such communication. Other current assets 58,537,753,128 82,722,075,939 The engagement partner on the audit resulting in this independent auditor’s report is Yong-Wook Jun, Certified Public Accountant. 1,251,152,532,393 1,389,676,437,173

Non-current assets held for sale 28,513,775,482 -

Seoul, Korea Non-current assets March 21, 2019 Long-term financial instruments 172,770,159 236,630,439

Financial assets at fair value through profit or loss 1,000 -

Available-for-sale financial assets - 2,000

Long-term loans and other receivables 25,173,371,187 288,631,908

Property, plant and equipment 2,642,121,760,650 2,838,932,811,017

Intangible assets 5,540,182,744 7,401,186,076

Investment properties 4,694,156,372 4,728,883,682

Deferred tax assets 204,019,908,805 205,090,931,679

Other assets 53,348,216,990 54,568,031,253

2,935,070,367,907 3,111,247,108,054

Total assets 4,214,736,675,782 4,500,923,545,227

This report is effective as of March 21, 2019, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

KUMHO TIRE ANNUAL REPORT 2018 56 KUMHO TIRE ANNUAL REPORT 2018 57 THE NAME YOU CAN TRUST CONSOLIDATED FINANCIAL STATEMENTS

02 Consolidated Statements of Financial Position 03 Consolidated Statements of Comprehensive Income December 31, 2018 and 2017 [in Korean won] Years Ended December 31, 2018 and 2017 [in Korean won, except per share amounts]

2018 2017 2018 2017

Liabilities Sales 2,558,681,154,748 2,876,420,253,183

Current liabilities Cost of sales -2,170,507,688,170 -2,415,119,596,165

Trade payables 278,541,208,268 353,942,729,417 Gross profit 388,173,466,578 461,300,657,018

Short-term borrowings 456,924,884,317 673,485,350,895 Selling and administrative expenses -467,024,970,826 -618,460,624,961

Current portion of long-term borrowings 134,582,893,611 878,286,823,795 Operating loss -78,851,504,248 -157,159,967,943

Other payables 246,427,509,834 380,212,735,153 Other income 69,422,819,484 280,569,367,121

Other current liabilities 30,561,455,668 41,266,220,047 Other expenses -170,330,280,048 -144,013,419,864

Product warranty provision 7,549,794,671 - Finance income 138,726,193,517 38,031,131,240

Current tax liabilities 222,856,348 2,752,066,217 Finance costs -140,633,565,197 -149,185,824,007

1,154,810,602,717 2,329,945,925,524 Loss before income tax -181,666,336,493 -131,758,713,453

Non-current liabilities Income tax expense (benefit) -1,029,929,826 19,916,479,373

Long-term borrowings 1,344,729,576,269 852,431,055,224 Loss for the year -182,696,266,319 -111,842,234,080

Post-employment benefit obligation 135,342,226,010 160,324,572,570 Other comprehensive income

Long-term employee benefits 26,101,393,245 25,638,957,079 Items that may be subsequently reclassified to profit or loss

Product warranty provision 15,260,231,795 25,623,268,864 Exchange differences on translation of foreign operations 5,904,773,397 -27,913,898,201

Other non-current liabilities 2,719,546,399 3,504,030,409 Gain on valuation of derivatives - 631,161,423

Provision for litigation 122,799,223,219 112,046,162,376 Items that will not be reclassified to profit or loss

1,646,952,196,937 1,179,568,046,522 Remeasurements of net defined benefit liability 20,269,570,670 3,523,800,130

Total liabilities 2,801,762,799,654 3,509,513,972,046 Other comprehensive income for the year, net of tax 26,174,344,067 -23,758,936,648

Total comprehensive loss for the year -156,521,922,252 -135,601,170,728

Equity

Share capital 1,436,301,435,000 789,965,790,000 Loss is attributable to:

Capital surplus 227,652,016,316 246,692,976,952 Owners of the Parent Company -174,225,535,168 -124,830,840,787

Other components of equity -19,538,444,447 -19,538,444,447 Non-controlling interests -8,470,731,151 12,988,606,707

Accumulated other comprehensive income 9,418,441,229 4,787,276,028 -182,696,266,319 -111,842,234,080

Accumulated deficits -240,859,571,970 -67,368,858,086 Total comprehensive loss for the year is attributable to:

Equity attributable to owners of the Parent Company 1,412,973,876,128 954,538,740,447 Owners of the Parent Company -149,324,799,297 -147,613,200,110

Non-controlling interest - 36,870,832,734 Non-controlling interests -7,197,122,955 12,012,029,382

Total equity 1,412,973,876,128 991,409,573,181 -156,521,922,252 -135,601,170,728

Total liabilities and equity 4,214,736,675,782 4,500,923,545,227 Loss per share attributable to the equity holders of the Parent Company

Basic loss per share -787 -790

Diluted loss per share -787 -790

KUMHO TIRE ANNUAL REPORT 2018 58 KUMHO TIRE ANNUAL REPORT 2018 59 THE NAME YOU CAN TRUST CONSOLIDATED FINANCIAL STATEMENTS

04 Consolidated Statements of Changes in Equity Years Ended December 31, 2018 and 2017 [in Korean won]

Other components Accumulated other Retained earnings Share capital Capital surplus Total Non-controlling Interest Total of equity comprehensive income (Accumulated deficits)

Balance at January 1, 2017 789,965,790,000 246,692,976,952 -19,538,444,447 31,093,435,481 53,938,182,571 1,102,151,940,557 111,931,609,791 1,214,083,550,348

Profit (loss) for the year - - - - -124,830,840,787 -124,830,840,787 12,988,606,707 -111,842,234,080

Other comprehensive income

Remeasurements of net defined benefit liability - - - - 3,523,800,130 3,523,800,130 - 3,523,800,130

Exchange differences on translation of foreign operations - - - -26,306,159,453 - -26,306,159,453 -1,607,738,748 -27,913,898,201

Gain on valuation of derivatives ------631,161,423 631,161,423

Total comprehensive loss for the year - - - -26,306,159,453 -121,307,040,657 -147,613,200,110 12,012,029,382 -135,601,170,728

Dividend distributions in subsidiaries ------2,842,689,011 -2,842,689,011

Change of consolidation scope ------84,230,117,428 -84,230,117,428

Balance at December 31, 2017 789,965,790,000 246,692,976,952 -19,538,444,447 4,787,276,028 -67,368,858,086 954,538,740,447 36,870,832,734 991,409,573,181

Balance at January 1, 2018 789,965,790,000 246,692,976,952 -19,538,444,447 4,787,276,028 -67,368,858,086 954,538,740,447 36,870,832,734 991,409,573,181

Changes in accounting policy - - - - -19,534,749,386 -19,534,749,386 -70,289,940 -19,605,039,326

789,965,790,000 246,692,976,952 -19,538,444,447 4,787,276,028 -86,903,607,472 935,003,991,061 36,800,542,794 971,804,533,855

Loss for the year - - - - -174,225,535,168 -174,225,535,168 -8,470,731,151 -182,696,266,319

Other comprehensive income

Remeasurements of net defined benefit liability - - - - 20,269,570,670 20,269,570,670 - 20,269,570,670

Exchange differences on translation of foreign operations - - - 4,631,165,201 - 4,631,165,201 1,273,608,196 5,904,773,397

Total comprehensive loss for the year - - - 4,631,165,201 -153,955,964,498 -149,324,799,297 -7,197,122,955 -156,521,922,252

Capital increase 646,335,645,000 -3,201,657,603 - - - 643,133,987,397 - 643,133,987,397

Effects of changes in ownership interests of subsidiaries - -15,839,303,033 - - - -15,839,303,033 -29,603,419,839 -45,442,722,872

Balance at December 31, 2018 1,436,301,435,000 227,652,016,316 -19,538,444,447 9,418,441,229 -240,859,571,970 1,412,973,876,128 - 1,412,973,876,128

KUMHO TIRE ANNUAL REPORT 2018 60 KUMHO TIRE ANNUAL REPORT 2018 61 THE NAME YOU CAN TRUST CONSOLIDATED FINANCIAL STATEMENTS

05 Consolidated Statements of Cash Flows 05 Consolidated Statements of Cash Flows Years Ended December 31, 2018 and 2017 [in Korean won] Years Ended December 31, 2018 and 2017 [in Korean won]

2018 2017 2018 2017

Cash flows from operating activities Cash flows from financing activities

Cash generated from operations Proceeds from short-term borrowings 479,595,581,874 477,156,571,017

Loss for the year -182,696,266,319 -111,842,234,080 Proceeds from long-term borrowings 56,511,512,528 258,051,725,861

Adjustments 384,810,053,975 328,537,935,681 Increase in government grants - 50,666,094,744

Change in operating assets and liabilities -47,337,659,135 6,158,290,559 Issuance of bonds - 29,909,700,000

Interest received 6,236,703,111 1,007,102,040 Capital increase 643,133,987,397 -

Interest paid -99,360,127,040 -123,934,012,823 Repayments of short-term borrowings -655,379,357,478 -604,536,697,876

Dividends paid - -2,842,689,011 Repayments of current portion of long-term borrowings -249,024,282,699 -206,098,815,563

Income taxes paid -4,851,009,859 -25,781,258,607 Acquisition of non-controlling interests -45,404,920,389 -

Net cash inflow (outflow) from operating activities 56,801,694,733 71,303,133,759 Others -584,684,748 -275,040,643

Net cash inflow from financing activities 228,847,836,485 4,873,537,540

Cash flows from investing activities

Decrease in short-term financial instruments 5,695,137,616 67,605,209,715 Effects of exchange rate changes on cash and cash equivalents 1,326,922,568 -3,765,851,404

Decrease in loans and other receivables - 164,909,106 Net increase (decrease) in cash and cash equivalents 119,802,956,969 -11,264,644,066

Decrease in available-for-sale financial assets - 114,369,971,141 Cash and cash equivalents at the beginning of the year 152,031,383,347 163,517,696,507

Decrease in other investment assets 111,692,560 1,315,894,560 Change of consolidation scope - -221,669,094

Proceeds from disposal of property, plant and equipment 22,082,249,271 27,904,596,224 Cash and cash equivalents at the end of the year 271,834,340,316 152,031,383,347

Proceeds from disposal of intangible assets 62,875,830 -

Decrease in other non-current assets 2,908,124,346 1,904,790,124

Increase in short-term financial instruments -11,084,644,849 -1,974,876,727

Increase in long-term financial instruments -12,901,200

Decrease in short-term loans and other receivables -25,036,607,332 -189,840,652

Payments for property, plant and equipment -158,815,560,529 -289,852,203,449

Payments for intangible assets -183,077,412 -1,692,245,861

Increase in other non-current assets -2,880,091,440 -1,782,373,075

Increase in other investment assets -20,693,678 -1,449,295,067

Net cash outflow from investing activities -167,173,496,817 -83,675,463,961

KUMHO TIRE ANNUAL REPORT 2018 62 KUMHO TIRE ANNUAL REPORT 2018 63 SEPARATE FINANCIAL STATEMENTS

01 Independent Auditor’s Report

(English Translation of a Report Originally Issued in Korean)

To the Board of Directors and Shareholders of Kumho Tire Co., Inc.

Opinion In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of Kumho Tire Co., Inc. as at December 31, 2018, and its separate financial performance and its separate cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS).

SEPARATE Basis for Opinion We conducted our audit in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further de- scribed in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Com- pany in accordance with the ethical requirements of the Republic of Korea that are relevant to our audit of the financial statements and we have fulfilled our other ethical responsibilities in accordance with the ethical requirements. We believe that the audit evidence we FINANCIAL have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our STATEMENTS opinion thereon, and we do not provide a separate opinion on these matters.

(1) Impairment assessment for cash generating units

| Key Audit Matter | As disclosed in Note 3 to the separate financial statements, the Company reviews the carrying amount of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss and non-financial assets are tested for impairment whenever there is an indication that the carrying amount will not be recoverable. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the CGUs to which the asset belongs. The Company does not recognize impairment loss because it is determined that the recoverable amount of the CGUs exceeds the book amount as a result of impairment assessment.

When performing impairment assessment, determination of CGUs and estimation of future cash flows are made upon management’s decision. We considered that impairment assessment for CGUs is a key audit matter given the significant amount of the non-financial

65 - Independent Auditors’ Report assets and the risk of potential bias in management estimation. 69 - Separate Statements of Financial Position | How our audit addressed the Key Audit Matter | 71 - Separate Statements of Comprehensive Income Our audit procedures included the following to address the key audit matter: 72 - Separate Statements of Changes in Equity · We assessed the adequacy of the assets allocated to CGUs defined by management. 74 - Separate Statements of Cash Flows · We evaluated the qualification and objectivity of external specialists used by management. · We challenged the appropriateness of the future cash flow forecasts used in estimation of value-in-use with reference to the business plan approved by management. · We assessed the appropriateness of valuation model used by management for the estimation of recoverable amounts. · We evaluated the reasonableness of key assumptions used in value-in-use.

KUMHO TIRE ANNUAL REPORT 2018 65 THE NAME YOU CAN TRUST SEPARATE FINANCIAL STATEMENTS

(2) Modification of terms of financial liabilities Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the separate financial statements in accordance with Korean | Key Audit Matter | IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are As disclosed in Note 18 to the separate financial statements, terms of certain financial liabilities were modified during the year ended free from material misstatement, whether due to fraud or error. December 31, 2018, and as a result, interest rates of existing borrowings were lowered and maturities were extended. The modified terms may lead to significant changes in profit or loss, and the accounting treatments for various borrowings’ modification may increase the In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, risk of incorrect accounting information being recorded. Therefore, we identified modification of terms of financial liabilities as a key disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either audit matter. intends to liquidate the Company or to cease operations.

| How our audit addressed the Key Audit Matter | Those charged with governance are responsible for overseeing the Company’s financial reporting process. Our audit procedures included the following to address the key audit matter: · We inspected documents such as agreements to confirm changes in terms of financial liabilities. Auditor’s Responsibilities for the Audit of the Financial Statements · We reviewed the conformity of the cash flows provided by the Company with the terms in modified loan agreement. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstate- · We reviewed whether modified terms meet the requirements that new financial liabilities shall be recognized after derecognition of ment, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of existing financial liabilities. assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material · We reviewed the reasonableness of the applied market rate in consideration of the Company’s credit rating, collateral and others. misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. (3) Impairment assessment for investments in subsidiaries As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional | Key Audit Matter | skepticism throughout the audit. We also: As disclosed in Note 10 to the separate financial statements, the Company performed impairment assessment for its investments in · Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform au- subsidiaries and determined that the recoverable amount of the respective investment assets is less than the carrying amount, and thus dit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. recognized the impairment loss for the year ended December 31, 2018. When performing impairment assessment, the estimation of fu- The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve ture cash flows and discount rate is made upon management’s decision. We considered that impairment assessment for investments in collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. subsidiaries is a key audit matter given the significant amount of the investments in subsidiaries and the involvement of management’s · Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circum- estimation and judgment. stances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. · Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures | How our audit addressed the Key Audit Matter | made by management. Our audit procedures included the following to address the key audit matter: · Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence ob- · We assessed the appropriateness of valuation model used by management for the estimation of recoverable amounts. tained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to · We challenged the appropriateness of the future cash flow forecasts used in estimation of value-in-use with reference to the business continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report plan approved by management. to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions · We evaluated the qualification of external specialists used by management. are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the · We evaluated the reasonableness of key assumptions used in value-in-use. Company to cease to continue as a going concern. · We verified the adequacy of the management’s disclosures relating to impairment. · Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Other Matters The separate financial statements of the Company for the year ended December 31, 2017, were audited by another auditor who ex- pressed an unmodified opinion on those statements on April 9, 2018.

Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries.

KUMHO TIRE ANNUAL REPORT 2018 66 KUMHO TIRE ANNUAL REPORT 2018 67 THE NAME YOU CAN TRUST SEPARATE FINANCIAL STATEMENTS

02 Separate Statements of Financial Position December 31, 2018 and 2017 [in Korean won]

2018 2017 We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and Assets significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Current assets We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding Cash and cash equivalents 179,358,540,542 103,509,008,443 independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. Short-term financial instruments 10,039,767,700 12,994,776

Available-for-sale financial assets - 4,480,000 From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s Trade receivables 418,938,790,120 632,788,333,897 report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine Short-term loans and other receivables 26,292,737,752 55,392,856,112 that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected Inventories 168,056,117,270 179,005,270,027 to outweigh the public interest benefits of such communication. Other current assets 185,599,191,713 119,303,077,247 The engagement partner on the audit resulting in this independent auditor’s report is Yong-Wook Jun, Certified Public Accountant. 988,285,145,097 1,090,016,020,502

Non-current assets held for sale 13,148,703,000 -

Seoul, Korea Non-current assets March 21, 2019 Long-term financial instruments 43,758,200 30,857,000

Financial assets at fair value through profit or loss 1,000 -

Available-for-sale financial assets - 2,000

Investments in subsidiaries 573,355,575,655 610,973,525,297

Long-term loans 62,653,979,801 112,084,933,795

Property, plant and equipment 1,110,400,190,798 1,178,850,534,355

Intangible assets 3,482,384,902 4,563,340,460

Investment properties 4,694,156,372 4,728,883,682

Deferred tax assets 173,023,360,135 177,575,923,343

Other assets 45,716,535,890 37,887,258,602

1,973,369,942,753 2,126,695,258,534

Total assets 2,974,803,790,850 3,216,711,279,036

This report is effective as of March 21, 2019, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

KUMHO TIRE ANNUAL REPORT 2018 68 KUMHO TIRE ANNUAL REPORT 2018 69 THE NAME YOU CAN TRUST SEPARATE FINANCIAL STATEMENTS

02 Separate Statements of Financial Position 03 Separate Statements of Comprehensive Income December 31, 2018 and 2017 [in Korean won] Years Ended December 31, 2018 and 2017 [in Korean won, except per share amounts]

2018 2017 2018 2017

Liabilities Sales 1,881,271,577,121 2,177,799,854,774

Current liabilities Cost of sales -1,660,783,177,376 -1,971,386,243,997

Trade payables 187,512,032,224 220,480,057,663 Gross profit 220,488,399,745 206,413,610,777

Short-term borrowings 313,299,928,368 435,174,415,144 Selling and administrative expenses -241,562,972,087 -349,427,899,465

Current portion of long-term borrowings 8,820,911,715 680,514,727,621 Operating loss -21,074,572,342 -143,014,288,688

Other payables 96,292,612,274 202,547,710,084

Financial guarantee liabilities 5,419,320,080 6,490,828,001 Other income 44,665,399,299 175,574,885,974

Product warranty provision 7,549,794,671 - Other expenses -479,209,140,365 -258,935,582,631

Other current liabilities 19,710,881,008 21,394,229,903 Finance income 71,381,848,929 22,659,498,848

638,605,480,340 1,566,615,860,196 Finance costs -214,835,105,003 -73,007,056,361

Non-current liabilities Loss before income tax -599,071,569,483 -276,722,542,858

Long-term borrowings 650,961,519,178 175,441,895,280 Income tax benefit 1,731,197,217 31,431,526,936

Post-employment benefit obligation 135,342,226,010 160,324,572,570 Loss for the year -597,340,372,266 -245,291,015,922

Long-term employee benefits 26,035,644,434 25,508,027,886

Financial guarantee liabilities 185,439,830,548 17,787,981,095 Other comprehensive income

Product warranty provision 8,470,841,246 17,067,449,559 Items that may be subsequently reclassified to profit or loss

Provision for litigation 122,799,223,219 112,046,162,376 Changes in the fair value of available-for-sale financial assets - -

1,129,049,284,636 508,176,088,766 Items that will not be reclassified to profit or loss

Total liabilities 1,767,654,764,976 2,074,791,948,962 Remeasurements of defined benefit plans 20,269,570,670 3,523,800,130

Other comprehensive income for the year, net of tax 20,269,570,670 3,523,800,130

Equity Total comprehensive loss for the year -577,070,801,596 -241,767,215,792

Share capital 1,436,301,435,000 789,965,790,000 Loss per share attributable to the equity holders of the Company

Capital surplus 220,533,408,310 223,735,065,913 Basic loss per share -2,698 -1,553

Other components of equity -16,617,857,698 -16,617,857,698 Diluted loss per share -2,698 -1,553

Retained earnings (accumulated deficits) -433,067,959,738 144,836,331,859

Total equity 1,207,149,025,874 1,141,919,330,074

Total liabilities and equity 2,974,803,790,850 3,216,711,279,036

KUMHO TIRE ANNUAL REPORT 2018 70 KUMHO TIRE ANNUAL REPORT 2018 71 THE NAME YOU CAN TRUST SEPARATE FINANCIAL STATEMENTS

04 Separate Statements of Changes in Equity Years Ended December 31, 2018 and 2017 [in Korean won]

Other components Accumulated other Retained earnings (Accumulated Share capital Capital surplus Total of equity comprehensive income deficits)

Balance at January 1, 2017 789,965,790,000 223,735,065,913 -16,617,857,698 - 386,603,547,651 1,383,686,545,866

Loss for the year - - - - -245,291,015,922 -245,291,015,922

Other comprehensive income

Changes in the fair value of available-for-sale financial assets ------

Remeasurements of defined benefit plans - - - - 3,523,800,130 3,523,800,130

Total comprehensive loss for the year - - - - -241,767,215,792 -241,767,215,792

Balance at December 31, 2017 789,965,790,000 223,735,065,913 -16,617,857,698 - 144,836,331,859 1,141,919,330,074

- - - -

Balance at January 1, 2018 789,965,790,000 223,735,065,913 -16,617,857,698 - 144,836,331,859 1,141,919,330,074

Changes in accounting policy - - - - -833,490,001 -833,490,001

789,965,790,000 223,735,065,913 -16,617,857,698 - 144,002,841,858 1,141,085,840,073

Loss for the year - - - - -597,340,372,266 -597,340,372,266

Other comprehensive income - - - -

Remeasurements of defined benefit plans - - - - 20,269,570,670 20,269,570,670

Total comprehensive loss for the year - - - - -577,070,801,596 -577,070,801,596

Capital increase 646,335,645,000 -3,201,657,603 - - - 643,133,987,397

Balance at December 31, 2018 1,436,301,435,000 220,533,408,310 -16,617,857,698 - -433,067,959,738 1,207,149,025,874

KUMHO TIRE ANNUAL REPORT 2018 72 KUMHO TIRE ANNUAL REPORT 2018 73 THE NAME YOU CAN TRUST SEPARATE FINANCIAL STATEMENTS

05 Separate Statements of Cash Flows 05 Separate Statements of Cash Flows Years Ended December 31, 2018 and 2017 [in Korean won] Years Ended December 31, 2018 and 2017 [in Korean won]

2018 2017 2018 2017

Cash flows from operating activities Cash flows from financing activities

Cash generated from operations Proceeds from short-term borrowings 299,404,186,184 164,852,569,521

Loss for the year -597,340,372,266 -245,291,015,922 Issuance of bonds - 29,909,700,000

Adjustments 744,970,147,739 365,259,587,238 Proceeds from long-term borrowings 169,696,721 -

Change in operating assets and liabilities 1,969,305,455 -54,099,796,534 Capital increase 643,133,987,397 -

Interest received 11,241,507,444 5,631,974,904 Repayments of short-term borrowings -418,592,592,593 -160,064,198,178

Interest paid -40,299,094,774 -53,623,083,891 Repayments of current portion of long-term borrowings -33,015,013,376 -2,363,654,104

Income taxes paid -187,527,306 -25,142,007,466 Repayments of current portion of bonds -120,000,000,000 -

Net cash inflow (outflow) from operating activities 120,353,966,292 -7,264,341,671 Net cash inflow from financing activities 371,100,264,333 32,334,417,239

Cash flows from investing activities Net increase in cash and cash equivalents 74,953,903,829 33,135,444,636

Proceeds from disposal of property, plant and equipment 1,899,405,083 2,899,462,118 Cash and cash equivalents at the beginning of the year 103,509,008,443 72,789,426,831

Proceeds from disposal of intangible assets 62,875,830 - Effects of exchange rate changes on cash and cash equivalents 895,628,270 -2,415,863,024

Decrease in short-term and long-term financial instruments 12,994,776 67,913,338,382 Cash and cash equivalents at the end of the year 179,358,540,542 103,509,008,443

Proceeds from disposal of available-for-sale financial assets - 114,369,971,141

Proceeds from disposal of trading securities - 16,791,101

Decrease in short-term and long-term loans and other receivables 97,816,742,529 71,421,864

Decrease in other non-current assets 2,907,329,474 1,215,121,270

Increase in short-term and long-term financial instruments -10,012,901,200 -

Increase in short-term and long-term loans and other receivables -26,268,908,776 -30,183,032

Increase in available-for-sale financial assets - -1,310,000

Payments for investments in subsidiaries -391,709,725,600 -55,942,100,000

Payments for property, plant and equipment -88,181,931,332 -120,752,610,933

Payments for intangible assets -146,116,140 -155,627,973

Increase in other non-current assets -2,880,091,440 -1,538,904,870

Net cash inflow (outflow) from investing activities -416,500,326,796 8,065,369,068

KUMHO TIRE ANNUAL REPORT 2018 74 KUMHO TIRE ANNUAL REPORT 2018 75 With its head office in Capitalize Seoul, Kumho Tire SEOUL OFFICE R&D CENTERS OVERSEAS SALES CORPORATIONS 68, Saemunan-Ro, Jongno-Gu, Seoul, KOREA GLOBAL 01 | Yongin Central R&D Center 01 | Kumho Tire U.S.A., Inc. operates eight overseas sales corporations and 12 branches/offices. 215-21, Saeun-Ro, Gihung-Gu, Yongin-Si, 133 Peachtree Street NE, Suite 2800, Atlanta, The company exports over USD 1.8 billion worth of products a year to PLANTS Gyeonggi-Do GA 30303, USA NETWORK 02 | Gwangju Performance Center TEL. 1-800-445-8646 | FAX. 1-678-916-3280 roughly 180 countries around the world. All plants and R&D centers are 01 | Gwangju Plant 658, Eodeung-Daero, Gwangsan-Gu, Gwangju 658, Eodeung-Daero, Gwangsan-Gu, Gwangju 02 | Kumho Tire Europe GmbH efficiently connected with one another to research and develop the 02 | Gokseong Plant 03 | KATC (U.S.A.) Brüsseler Platz 1, 63067 Offenbach am Main, GERMANY 711 South Cleveland-Massillon Road Akron, TEL. 49-69)94331811 | FAX. 49-69)490-069 best tires. Going forward, Kumho Tire will continue to grow through 85-63, Geumho-Gil, Ip-Myeon, Gokseong-Gun, Jellanam-Do Ohio 44333, USA 03 | Kumho Tyre (U.K.) Ltd. active marketing and an expanded distribution network. 03 | Pyeongtaek Plant 04 | KETC (GERMANY) Unit 3310 Hunter Boulevard, Magna Park, Lutterworth, 87, Pyeongtaek-Ro 156Beon-Gil, Poseung-Eup, Kumho Tire Europe Technical Center Leicestershire LE17 4XN, UK Pyeongtaek-Si, Gyeonggi-Do Starkenburg Strasse 10, 64546, TEL. 44-(0)1455 200 000 | FAX. 44-020)8661-2771 04 | Nanjing Kumho Tire Co., Ltd. Moerfelden-Walldorf, GERMANY 04 | Kumho Tire France S.A.S 8 Chunyu Road Nanjing Pukou Economic 05 | KCTC (CHINA) BAT le Art'Val Paris Nord 2, 9 Rue des Trois Soeurs, BP Development zone, Nanjing, Jiangsu, CHINA No.49 Xinye 3 Street, The West Zone Of Teda, 42030 Villepinte, 95912 Roissy C.D.G. Cedex, FRANCE 05 | Kumho Tire (Tianjin) Co., Inc. Tianjin, CHINA TEL. 33-01)4938-0539 | FAX. 33-01)4938-0895 No.333 Zhongnan, 2st. Teda, Tianjin, CHINA 05 | Kumho Tire Canada, Inc. 06 | Kumho Tire (Changchun) Co., Inc. Unit B, 6430 Kennedy Rd. Mississauga, ON L5T 2Z5, CANADA No.677 Jinhu Road, Changchun, CHINA TEL. 1-905)564-0882 | FAX. 1-604)241-5591 07 | Kumho Tire (Vietnam) Co., Inc. Gcn, My Phuoc3, Industrial Park, Ben Cat Dist., Binh Duong Province, VIETNAM 08 | Kumho Tire Georgia Inc. 3051 Kumho Parkway, Macon, GA 31216, USA

03 02 02 04 03 04 01 04

05 06 05 05 05 03

10 01 01 04 08 09 08 03

07 06 11 12 02 01 02 07

IR CONTACTS

KWON, DONG HUN General Manager | Finance Team Head [email protected]

CHE, HONG HWAN Manager | Finance Team KUMHO TIRE ANNUAL REPORT 2018 76 [email protected] With its head office in Capitalize Seoul, Kumho Tire SEOUL OFFICE R&D CENTERS OVERSEAS SALES CORPORATIONS 06 | Kumho Tire Japan, Inc. 68, Saemunan-Ro, Jongno-Gu, Seoul, KOREA Kyobashi Yamamoto Bldg 2F 3-12-7, Kyobashi, GLOBAL 01 | Yongin Central R&D Center 01 | Kumho Tire U.S.A., Inc. operates eight overseas sales corporations and 12 branches/offices. Chou-Ku, Tokyo, JAPAN (104-0031) 215-21, Saeun-Ro, Gihung-Gu, Yongin-Si, 133 Peachtree Street NE, Suite 2800, Atlanta, TEL. 81-3)3535-0880 | FAX. 81-3)3535-0881 The company exports over USD 1.8 billion worth of products a year to PLANTS Gyeonggi-Do GA 30303, USA 07 | Kumho Tyre Australia Pty. Ltd NETWORK 02 | Gwangju Performance Center TEL. 1-800-445-8646 | FAX. 1-678-916-3280 roughly 180 countries around the world. All plants and R&D centers are 01 | Gwangju Plant Level 2, Unit 214 Versatile, 29-31 Lexington Drive 658, Eodeung-Daero, Gwangsan-Gu, Gwangju 02 | Kumho Tire Europe GmbH 658, Eodeung-Daero, Gwangsan-Gu, Gwangju Bella Vista NSW 2153, AUSTRALIA 03 | KATC (U.S.A.) Brüsseler Platz 1, 63067 Offenbach am Main, GERMANY efficiently connected with one another to research and develop the 02 | Gokseong Plant TEL. 61-2)9912-9800 | FAX. 61-2)9912-9830 711 South Cleveland-Massillon Road Akron, TEL. 49-69)94331811 | FAX. 49-69)490-069 85-63, Geumho-Gil, Ip-Myeon, Gokseong-Gun, 08 | Kumho Tire China Co., Inc. best tires. Going forward, Kumho Tire will continue to grow through Ohio 44333, USA 03 | Kumho Tyre (U.K.) Ltd. Jellanam-Do 0-31F, BLK A, No 391 Guiping Rd., New Caohejing 04 | KETC (GERMANY) Unit 3310 Hunter Boulevard, Magna Park, Lutterworth, active marketing and an expanded distribution network. 03 | Pyeongtaek Plant International Business Center, Xuhui District, Kumho Tire Europe Technical Center Leicestershire LE17 4XN, UK 87, Pyeongtaek-Ro 156Beon-Gil, Poseung-Eup, Shanghai, CHINA Starkenburg Strasse 10, 64546, TEL. 44-(0)1455 200 000 | FAX. 44-020)8661-2771 Pyeongtaek-Si, Gyeonggi-Do TEL. 86-21)6139-1100 | FAX. 86-21)6139-1416 04 | Nanjing Kumho Tire Co., Ltd. Moerfelden-Walldorf, GERMANY 04 | Kumho Tire France S.A.S 8 Chunyu Road Nanjing Pukou Economic 05 | KCTC (CHINA) BAT le Art'Val Paris Nord 2, 9 Rue des Trois Soeurs, BP Development zone, Nanjing, Jiangsu, CHINA No.49 Xinye 3 Street, The West Zone Of Teda, 42030 Villepinte, 95912 Roissy C.D.G. Cedex, FRANCE OVERSEAS BRANCHES & OFFICES Tianjin, CHINA TEL. 33-01)4938-0539 | FAX. 33-01)4938-0895 05 | Kumho Tire (Tianjin) Co., Inc. 01 | Vienna 05 | Kumho Tire Canada, Inc. No.333 Zhongnan, 2st. Teda, Tianjin, CHINA Helmut-Qualtinger Gasse 2/7, 1030, Wien, AUSTRIA Unit B, 6430 Kennedy Rd. Mississauga, ON L5T 2Z5, CANADA 06 | Kumho Tire (Changchun) Co., Inc. TEL. 43 1 796 27 5501 | FAX. 43 1 796 27 55-91 TEL. 1-905)564-0882 | FAX. 1-604)241-5591 No.677 Jinhu Road, Changchun, CHINA 02 | Moscow 07 | Kumho Tire (Vietnam) Co., Inc. Office 603, Entrance 3, World Trade Center, Gcn, My Phuoc3, Industrial Park, Ben Cat Dist., Krasnopresnenskaya nab., 12, 123610 Moscow, RUSSIA Binh Duong Province, VIETNAM TEL/FAX. 7)495-258-1133 08 | Kumho Tire Georgia Inc. 03 | Northern Europe 3051 Kumho Parkway, Macon, GA 31216, USA Brüsseler Platz 1, 63067 Offenbach am Main, GERMANY TEL. 49-69)94331811 | FAX. 49-69)490-069 04 | Milano S.S Padana Superiore 2/B 20063 Cernusco Sul Naviglio (MI), ITALY TEL. 39-02)9210-6688 | FAX. 39-02)9210-7523 05 | Madrid P.E.Alvia Edificio 3, Planta 2, Oficina 3 C/jose Echegaray, 8 28232 Las Rozas, Madrid, SPAIN 03 02 TEL. 34-916-366-621 | FAX. 34-91-640-5373 02 06 | Mexico 04 03 Av.Paseo de la Reforma No.373, 7 Piso Despacho A 04 01 04 Col.Cuauhtemoc. Deleg.Cuauhtemoc C.P.06500, CDMX, MEXICO TEL. 52-1-55-5251, 7617 05 06 07 | Panama 05 05 05 03 P.H. Sortis Business Tower, Ofinica 18-D, CI. 57 este entre Av. Samuel Lewis y CI. Abel Bravo, Obarrio, Ciudad de, 06 Panama, Rep. de PANAMA 10 01 01 TEL. 507)209-6750(1) | FAX. 507)209-6754 04 08 09 08 | Sao Paulo 08 03 Rua. Florida, 1738 Conjunto 92, CEP: 04565-001, Bairro: Cidade Moncoes, Sao Paulo, SP, BRAZIL TEL. 55-11)5102-2633/2846 | FAX. 55-11)5102-2852 07 06 11 09 | Dubai 12 Office No 339, Office Tower 4, Al Ghurair Centre Deira, DUBAI 02 TEL. 971-4)299-9765 | FAX. 971-4)299-9525 01 02 07 10 | Cairo Building no. 56, Street No. 15, Maadi 3rd Floor, Flat No. 33, Cairo, EGYPT (Postal Code: 11728) TEL. 20-2)2767-2094 | FAX. 20-2)2528-1353 11 | Bangkok 55 Wave Place Building, 9th Floor, Unit 9.08, Wireless Road, Lumpini, Pathumwan, Bangkok 10330, THAILAND TEL. 66-2)317-7300 | FAX. 66-2)253-3913 12 | Ho Chi Minh Suite 103, M Plaza, 39 Le Duan Dist 1, 08 Ho Chi Minh City, VIETNAM TEL. 84-8)3822-1843 | FAX. 84-8)3829-5383 07

KUMHO TIRE ANNUAL REPORT 2018 76