HHI 2015 INTEGRATED REPORT HEAD+HEART=IDEAL Report Outline This publication, the second Sustainability Report produced by Hyundai Heavy Industries (HHI), introduces and explains the company's activities, achievements, and principles with regard to its economic, environmental, and social responsibilities. Contents regarding HHI’s overall HHI management, which include the business strategies of the company and the direction of its business operations, have been enriched in this report by implementing the Integrated Reporting framework. Reporting Period and Scope This report covers HHI’s sustainable management activities and achievements at all of its domestic worksites from January 1 to INTEGRATED December 31, 2014. The quantitative data comprise data from the REPORT three-year period 2012-2014 to ensure a better understanding of changing trends, although some of the major activities include data for HEAD+HEART=IDEAL the first half of 2015. Reporting Principle This report has been written based on the G4 guidelines of Global Reporting Initiative (GRI) and by referring to the Integrated Reporting Framework of the International Integrated Reporting Council (IIRC). In order to ensure the credibility of this report, a third-party assurance was conducted by DNV GL, an independent assurance agency. HHI Program Part 1. OVERVIEW 04 CEO Message • 06 Direction of the Integrated Report • 07 Stakeholder Engagement 08 About HHI • 10 Worksites Overview • 12 Shared Values Part 2. BUSINESS REVIEW 16 Business Performance Assessment • 17 Stock Information • 18 Business Overview 20 Divisional Business Performance Part 3. SUSTAINABILITY 40 Sustainable Management Operation Systems • 42 Materiality Analysis PERFORMANCE 44 Sustainable Growth [Change and Innovation·Employee Empowerment·Research and Development·Quality Management·Customer Information Protection] 55 Fair and Transparent Management [Business Ethics·Compliance Management·HR Evaluation·Integrity of Governance·Enhancing Transparency] 66 Safe and Environmentally Friendly Management [Safety Management·Environmental·Health Management] Reader’s Guide 78 Corporate Culture of Mutual Respect and Trust · · · The 2015 HHI Integrated Report is produced in Interactive PDF format and [Labor-Management Culture Inter-Employee Communication Employee Welfare Shared Growth] can be downloaded from the HHI website. This PDF file presents further 86 Contribution to Social Development [Social Contribution, Culture & Arts] details on HHI’s sustainable management activities as well as outcomes. Part 4. APPENDIX 96 Financial Statement • 105 Audit Reports of an Independent Auditor 106 Review of Internal Accounting Control System • 107 Third-Party Certification Report Shortcut to Pages Link to the Relevant Webpage 109 GRI G4 Guidelines Index & ISO 26000 • 112 Membership Status P a r t 01 CREATIVE WISDOM We have secured our leading position with firm conviction to create great outcomes using only a limited amount of resources. OVERVIEW By turning forward-looking ideas and creative wisdom into reality, we will create a better tomorrow. OVERVIEW The year 2015 is a year of reform CEO for a competitive recovery MESSAGE Choi Kil-seon, Chairman & CEO Kwon Oh-gap, President & CEO Dear Valued Customers, Shareholders, and Investors, developing the LNG-FSRU (LNG Floating, Storage & Regasification fields of finance, accounting, IT, and communication to improve Guided by our conviction that our competitiveness depends on our Employees of HHI, Partners, Communities, and all Stakeholders: Unit). Nonetheless, we were unable to avoid a significant drop management support efficiency. subcontractors’ competitiveness, we support a variety of shared in sales and heavy operating losses due to the prolonged global growth programs for subcontractors’ sales growth and overseas It is my great pleasure to present our second report on our activities recession, the downturn in shipping industry, and the closing in of We have made various efforts to reinforce our competitiveness, expansion. We established our own sustainable management and performances for sustainable growth. competitors such as China and Japan. such as the introduction of performance-based compensation models such as business ethics and compliance management, to encourage internal competition and the reinforcement of complying with international norms and opening transparent The 2015 HHI Integrated Report combines the annual report and Thus, we declared 2015 as "a year of reform for a competitive responsibility management led by business representatives who management information. the sustainability report in response to stakeholders' demand for recovery," and promoted radical changes and innovations including have substantial authority and responsibility for the organizations. information disclosure. Through this report, we hope to provide business restructuring and divisional consolidation. Based on close communication with stakeholders, we will more systematic and detailed account of HHI’s management Moreover, we have been committed to our social responsibilities continuously endeavor to be a more reliable company. We would philosophy, future plans, value creation processes, and value We integrated the Offshore & Engineering Division and the and roles despite the difficult business environment. During greatly appreciate your attention in our voyage toward becoming outcomes. Industrial Plant & Engineering Division to maximize our efficiency. 2014, we invested KRW 330 billion in initiatives and measures the best. Finally, we look forward to your unwavering interest and We are also consolidating our overseas branches and affiliates aimed at raising safety awareness among employees and at support for HHI’s sustainable future. The year 2014 was an eventful year for us. We were ranked in based on their profitability. Likewise, we initiated a group sales unit establishing a safer work environment. We also reached out to the "Global 500" compiled by Fortune magazine for the eighth by consolidating the sales organization of our three shipbuilding socially marginalized neighbors in the communities by carrying out Thank you. consecutive year. In addition, we earned recognition and credit entities. We also launched the Group Shipbuilding A/S Center to philanthropic activities such as raising funds through the “Charitable for our technology as a global leading company by successfully deliver better service. Additionally, we merged similar tasks in the Bazaar with Love” and the “Making Kimchi with Love” event. 2015 HHI Integrated Report 04 · 05 OVERVIEW Direction of the Integrated Report Stakeholder Engagement Publication of the Integrated Report Communication with Stakeholders Our first sustainability report was published in 2014 to present our sustainable activities and achievements and For effective communication, we categorize our stakeholders into six groups—customers, shareholders/ to communicate with the stakeholders. The second report in 2015 presents comprehensive information on investors, subcontractors, communities, industries, and employees—and manage the communication channels HHI's economic activities and social responsibilities from a balanced viewpoint by integrating the annual report befitting the unique characteristic of each group. and the sustainability report. 2014 Sustainability Report 2015 Integrated Report Report on economic, social, and Through the incorporation of environmental activities and the annual report and the achievements, with the focus sustainability report, report on on seven major sustainable HHI's reinforced value creation management issues process by business side Customers Shareholders• Subcontractors Communities Industries Employees Investors •Warranty & Lifetime Service •General Shareholders’ •Group Shared Development •Charitable Bazaar with Love •Meeting of Practitioners from •Collective Bargaining •Feedback Service Meeting Committee •Making Kimchi with Love’ the Same Field •Wage Negotiations •Smart Service •IR News •Shared Growth Expansion Event •Korea Offshore & Shipbuilding •Labor and Management Council Council Association Activities •FLiK Magazine •Annual Report •Employee Volunteer Activities •Consulting with Love •IR Meeting •Subcontractors Conference (Sarangbang) Integrated Report Concept •New Horizons •New Year’s Celebration •Industrial Health and Safety •Yard Tour Committee •HHI Webzine •HHI News HEAD + HEART = IDEAL Rationality and Passion together create Ideal Composition of Report The Integrated Report embodies our management philosophy in order to report our commitment to sustainable management and goal-oriented activities. Our various sustainable management activities are divided into five categories: sustainable growth, fair and transparent management, safe and environmentally FLiK New Visits to Charitable Bazaar Shipbuilding HHI Magazine Horizons Subcontractors with Love Health and Safety Newsletter friendly management, corporate culture of mutual respect and trust, and contribution to social development. Leaders’ Meeting Published on a Monthly Basis: Published on a Quarterly Basis: Seeking a Mutual Growth Plan Communication through Inspecting the Causes of Published on a Monthly Basis: Business Issues and Events of Business Activities, News, with subcontractors on June 25, Voluntary Community Activities Industrial Accidents and Seeking Management Issues, Employee HHI Investment Information, Status 2014 on November 4, 2014 Safety Plans on June 10, 2014 News, and Community PART 1 PART 2 PART 3 PART 4 of Technology Development