Management Direction of Doosan
September 2008
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The information herein is provided for your convenience only.
This document includes forward-looking statements including profit and loss estimates for 2008 and beyond. Such forward-looking statements involve both known and unknown risks, uncertainties and changes in market or other projected circumstances, which may cause actual results or performance to differ materially from stated or implied results or performance. Exchange rates and raw material prices could cause actual profits and revenue to differ materially from those stated and implied by such forward-looking statements.
Please note that projections contained in this document reflect current market situations and management direction of Doosan and its affiliates, and may change or be modified in accordance with changes in market conditions and group strategy.
The information is for information purposes only. We make no guarantees and assume no responsibility for the use of the information provided. Please do not base your investment decision on the information contained in this document. 1 Doosan is the 6th largest conglomerate in Korea
(T KRW)
Conglomerate ranking in Korea Key facts of Doosan (based on market capitalization)
Ranking Market Cap Items Facts(’08 E)
1. Samsung 151.5 Revenue 23 2. LG 54.5 3. SK 39.5 EBITDA 2.4 4. Hyundai Motor Company 38.1 5. Hyundai Heavy Industries 27.5 Asset 26 6. Doosan 18.4 Total # of employees 35,300 7. Lotte 15.9 (August, ’08) 8. Kumho Asiana 11.0 9. GS 8.3 10. Hanjin 6.8
Source : `08. 7.17. Disclosure by Korea Exchange
2 Doosan is the oldest conglomerate in Korea with 112 years of history
Early Market Restruct- Transition Growth Diversification Dominance uring to new biz.
~1900 `50 `60 `70 `80 `90 2000 `08~ Founded in 1896 Trading OB Beer Whisky Soju CocaCola Consumer Corn Product Goods Kimchi / Service Advertisement-Oricom Publication Fashion Capital 3M Nestle Kodak Construction Chemical Process Equipment Industrial Bottle/Can Packing Goods Electro-materials Power / Water / Casting & Forging Construction Equipment / Machine Tools / Industrial Vehicle 3 Doosan’s major affiliates
Doosan Corp. • Electro-Materials • Liquor
41.2% (50.1%) Doosan Heavy • Power plant: nuclear/thermal Industry • Desalination plant • Casting/forging
38.9% 39.8% 20.0% 100% 51% (41.8%) (45.2%) (25.0%)
Doosan Doosan Doosan Doosan Doosan Infracore* Mecatec Engine* Construction Capital** • Construction • CPE*** • Marine Diesel • Housing/civil/ • Installment/ equipment • Plant system Engine plant Lease finance • Industrial • Steel bridge • Corporate finance vehicles • Venture finance • Machine tool
* Doosan Infracore owns 51.8% of DII shares and Doosan Engine owns 48.2% Listed ** Doosan Infracore holds another 20.0% share of Doosan Capital Private ***CPE: Chemical Process Equipment ( ) : % of share based on voting right 4 Table of contents
• Change of Doosan
• Doosan's Management Direction
• Growth Strategy of Core Affiliates
• Key Financials
5 Crisis in 1995 (B KRW) Cashflow from Operation 300 200 Debt (T KRW) 3.6 100 2.7 0 2.2 '90 '91 '92 '93 '94 '95 1.9 -100 1.4 Interest Expense 400
300 0 200 -0.4 100 -0.5 Significant negative 0 '90 '91 '92 '93 '94 '95 Cashflow cashflow
CAPEX for Maintenance 160 120 -0.9 80 ‘91 ‘92 ‘93 ‘94 ‘95 40 0 L/E* 292% 376% 436% 544% 688% '90 '91 '92 '93 '94 '95
* Liability to Equity 6 Strategic changes for the last 10 years
Take-off for global leadership Acquisition of new growth engine & portfolio transformation Successful restructuring
1996 2000 2006
•Restructuring •New start (2G Strategy) •Global M&As –3M, Nestle, Kodak –Growth of business –AES (US, ‘05) –OB, CocaCola, Seagram –Growth of people –Mitsui Babcock (UK, ’06) –Divestiture/ liquidation –IMGB (Romania, ’06) •Growth by M&A –Yonhap Capital (Finance, ’06) –Yantai Yuhua (China, ’07) •Improved financial structure −Doosan Heavy (former KHI) –CTI Engine (US, ’07) –D/E: 688% Æ 150% −Koryo Industrial Dev. (merged –Bobcat (US, ’07) into Doosan Construction) –Moxy (Norway, ’08) •Operation Improvement −Doosan Infracore (former −Introduction of performance Daewoo HI&M) •Continued restructuring enhancement programs –Kimch, etc
•Management system upgrade
7 Doosan's change
• Consumer Goods Æ ISB*
• Domestic Æ Global Company
• Local Leader Æ Global Leader
* Infrastructure Support Business 8 Change from consumer goods to ISB*
(T KRW)
Business mix ISB affiliates : 20 (Revenue) 3.4 23 • Doosan Heavy 6.0 • Doosan Infracore 5.3 Industrial Goods • D I I 2.9 (33%) • Doosan Const. 2.0 • Doosan Engine 1.9 ISB • Doosan Mecatec 0.8 (87%) • IMGB / Babcock 1.2 Consumer Goods Non-ISB affiliates : 3 (67%) • Doosan Corp • Oricom Non-ISB -EM** BG • Samhwa C&C (13%) -Liquor BG • Doosan Capital ‘98 ’08(E) - Fashion BG • Neoplux - Publishing BG • Doosan Bears * Infrastructure Support Business ** Electro-Materials - Techpack BG 9 Change from domestic to Global company
(T KRW, # of people) Revenue mix People mix
3.4 23 8,275 35,300 20 0.4 (0.2%) Overseas (12%) Overseas 15,100 (42.8%) 13 (57%)
3.0 8,255 Korea Korea (88%) (99.8%) 20,200 (57.2%) 10 (43%)
’98 ’08 ’98 ’08
10 Doosan's global network
91 subsidiaries, 45 branches, 29 plants, 3,800 dealers
North Dacota, USA United Kingdom Beijing, China • MX, SSL, CTL production • Doosan Babcock Energy • China Holding Co. of plant of DII of Doosan Heavy Dubai, UAE • R&D Center of Doosan Infracore
Doosan Heavy Belgium • Excavator/forklift production plant of Doosan Infracore Domestic plants • Doosan Infracore • Incheon ● ●●▲ • Changwon #1, #2 ● ● ● • Doosan Heavy ● ● Florida, USA ● Industries and ● ● • DHT, a desalination ● Construction company of Doosan • Changwon Heavy Yantai, China • Construction equipment Texas, USA Dobris, Czecho. India plant, Doosan Infracore • HF Controls, an • MX, SSL production • Doosan E&S instrument & control plant of DII • R&D Center of Doosan Sri Lanka system comp any Heavy • Doosan Heavy • Steel plant of Doosan ● Heavy
● Vietnam Doosan Group Romania • Casting & forging plant of • Steel structure production ● Subsidiaries 91 Papua New Guinea Doosan Heavy plant of Doosan Heavy Branches 45 • Power plant of Doosan • Boiler, HRSG production Dealers 3,800 plant of Doosan Heavy Heavy Infracore/Doosan Heavy Mfg. plant 29 Major plant projects 11 Change from local leader to global leader
Local Market Position Global Market Position
• Beer : #1 in Korea Doosan • Desalination MSF: #1 in Global (M/S 40%) • HRSG1) : #1 in Global (M/S 32%) Heavy • Soju : #2 in Korea • Crankshaft : #3 in Global (M/S 23%)
• Casting/Forging : #1 in Global
• Beverage* : #1 in Korea • Nuclear : #1 in Global
: #1 in Korea • SSL/CTL2) : #1 in Global (M/S 39%) • Whisky Doosan • Attachment : #1 in Global (M/S 8%)
Infracore • Portable Air : #1 in Global (M/S 28%) • Publishing : #1 in Korea Compressor
• Fast Food : #1 in Korea • Excavator : #1 in China (M/S 20%) • Machine Tools : #4 in US (M/S 9%)
• Kimchi : #1 in Korea Engine/ • Ship Engine : #2 in Global (M/S 25%) • CPE : #1 in Global • CCL** : #1 in Korea Mecatec
* In carbonated soft drink 1) HRSG: Heat Recovery Steam Generator ** Copper Clad Laminate 2) SSL : Skid Steer Loader, CTL : Compact Track Loader
12 Growth of Doosan
Revenue EBITDA
(T KRW) (B KRW)
23.0 2,400
CAGR 18.6 2,103 21% CAGR 26% 11.8
1,013 6.9 670 3.4 247
'98 '02 '05 '07 '08(E) '98 '02 '05 '07 '08(E)
13 How did we make it happen?
• "Cash is king!"
• Bold restructuring
• Transformation through Proactive M&A
• Expertise in Operation
• People
Core Skills of management in Doosan
14 Cash is king!
• Cashflow as top business priority – Cashflow based management system unique to Doosan – Most important factor for MBO (30%~40%)
• Restructuring driven by cashflow, not by profit – Asset sales below the book value – Exit decision: Endure one-off big loss
• Working Capital Management – DSO reduction: 154 days (`96) → 80 days (`01)
• Management of adequate Capex and improvement of asset efficiency – Asset turnover: 0.63 (`96) → 0.73 (`01)
15 Bold restructuring
Cash flow (B KRW) 923 • Portfolio restructuring 562
– Sale of key businesses : 13 biz 350 ㆍCoca Cola (’97), OB (’98), 13 182 Whisky (’98), etc ’95 ’96 ’97 ’98 ’99 ’00 ’01 – Divestiture of 12 businesses Financial ㆍVending machine, Pizza, Milk, etc -590 crisis -908
• Balance sheet restructuring Debt-to-equity* ratio (%)
– ROIC < WACC as decision criteria 692
– Sale of real estate and idle assets 688 (e.g. Group HQ building) 333 – Sale of investment equity 191 (3M, Nestle, Kodak(’96)) 149
* Total liability '95 ‘96 ‘98 ‘00 ‘01 16 Proactive M&A and successful PMI
•Stepping stone for transformation from consumer DHI acquisition goods company to heavy industry company •Acquisition based on fair value: 2.1x the market price – EBITDA Multiple: 7.5x in ’01 → 4.7x in ’04 •Successful turnaround: Market cap increase by 25~40x – Global leadership in power generation and desalination
•Entry in construction equipment business DI acquisition •Acquisition based on fair value: 2.4x the market price – EBITDA Multiple: 14.5x in ’05 → 6.8x in ’08 •Successful turnaround: Market cap increase by 2.2~5x
•M&A for global competitiveness: 9 companies Global M&A •Became Global Top 7 in construction equipment – Product/regional portfolio synergy – Basis for Global Top 3 in 2012
17 Doosan's principle of M&A: Strategic approach
Pay Fair Value and focus on synergy : Double corp. value within 3~4yrs.
Strategic objective M&A targets
• AES (desalination) • Mitsui Babcock (generation)
Technology / Skill • Yonhap Capital (financing)
• CTI (engine)
• Bobcat (construction equipment)
• IMGB (casting & forging) • Yantai Yuhua (wheel loader)
Product / Capacity • Bobcat(compact equipment)
• Tong Myung Motrol (CE core parts)
• Moxy (ADT, RDT*)
Market / Network • Daewoo HI&M • Bobcat(network in US and Europe)
* ADT: Articulated Dump Truck RDT: Rigid Dump Truck
18 Doosan's principle of M&A: Stick to financial guideline
Revenue (T KRW) 30 M&A Bobcat growth 23 M&A DI 20 18.6 M&A DHI 15.9 11.8 10 6.2 6.1 8.7 3.4 3.1
‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 Debt to Affordable 7 EBITDA* 6.5 5.8 Good 5 4.0 3.9 3.9 3.6 2.5 3.0 2.9 Excellent 3
* Based on Net Debt ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 19 Value creation after M&A – DHI(incl. overseas)
Revenue EBIT Market Cap
(T KRW) (B KRW) (T KRW)
506 11.2 CAGRCAGR 7.2 CAGRCAGR CAGRCAGR 15%15% 25%25% 51%51%
2.8 2.4 150 0.6 83 0.4
‘00 ‘02 ’08(E) ‘00 ‘02 ’08(E) ‘00 ‘02 ’08*
M&A (’01)
* Average of 2008 20 Value creation after M&A – DI(incl. overseas)
Revenue EBIT Market Cap
(T KRW) (B KRW) (T KRW)
8.3 763 CAGRCAGR 4.7 38%38% CAGRCAGR CAGRCAGR 27% 27% 34%34% 3.5
3.7 303 3.2 236 1.3
‘04 ‘06 ’08(E) ‘04 ‘06 ’08(E) ‘04 ‘06 ’08* M&A (’05)
* Average of 2008 21 Expertise in Operation EBIT Margin
Operational Improvement (%) 8.7 7.8 • Cost reduction 6.4 TOP1) – Streamline production 4.9 4.9 – Improve quality
• Strategic procurement 2) PSM mgmt. and reduction ‘98 ‘04 ‘06 ‘07 ‘08
of raw material cost ROIC 17.6 • Cost reduction at the 3) 15.1 DTC point of design (%) 13.1
Lean • Production system 10% improvement 8.2 WACC Mfg.
Leverage as core 3.1 skill in PMI
‘98 ‘04 ‘06 ‘07 ‘08 1) TOP: Total Operational Performance; 2) PSM: Purchasing & Supply Management; 3) DTC: Design to Cost 22 People
• 2G Strategy – Pursue ' Growth of Business‘ by 'Growth of People' Management from outside • Open Door Policy 66% 62% • Keep management of target company after M&A
• Advanced evaluation & compensation
– Aggressive compensation tied with performance
– People Program • Utilize external professionals CEO Executive • Doosan Leadership Institute: top-notch institute for people development
23 Table of contents
• Change of Doosan
• Doosan's Management Direction
• Growth Strategy of Core Affiliates
• Key Financials
24 Doosan’s Tomorrow
• Growth Target
• Global Leader in ISB
• Transition to Holding Company Structure
• On-Going Restructuring
25 Growth Target by 2012
Revenue EBITDA
(T KRW) (B KRW) 40 6,000
4,100 33
23 2,400
14 1,300
3.4 247
’98 ’06 ’08(E) ’10(E) ’12(E) ’98 ’06 ’08(E) ’10(E) ’12(E)
26 Global Leader in ISB
Major Biz. Today Future
• Power generation Focus in main Global 1st Tier equipment and EPC
• Desalination Focus in Global Top Tier desalination plant water company
• Nuclear World class Global Champion manufacturing in main equipment
• Cons. Equipment Global Top 7 Global Top 3
• Manufacturing Tools Global Top 4 Global Top 3
• Ship Engine Global Top 2 Global No.1
27 Transition to HolCo and enhancement of transparent governance
• Doosan Corp. : Transition to HolCo (’08) – HolCo that also has its own business model – Vehicle for restructuring driven by IRR – Intangible asset value creation as HolCo
Focus on maximizing Total Shareholder Return
• Enhancing transparent governance – Independent management of affiliates by BOD – Key committees run 100% by outside directors ㆍOutside director nomination committee ㆍAudit, Internal transaction committee – Written ballot introduced Recognized core affiliates as a company with excellent corporate governance*
* Disclosure from CGS (Corporate Governance Service) 28 2008 Corporate Governance Grade
Grade ’07 ’08 657 643 Over Very Good 24(4%) 26(4%) 45(7%) Very Good - Doosan Corp. Good 50(8%) DI Moderate 118(18%) 109(17%) Good Doosan Corp. DHI DHI Doosan Const. DI
Weak & 470 458 Moderate Doosan Const. Very Weak (71%) (71%)
’07 ’08
Source : CGS (Corporate Governance Service)
29 On-Going Restructuring
• Focus on ISB
• Divest non-core business
• Continued business replacement for more synergy
30 Table of contents
• Change of Doosan
• Doosan's Management Direction
• Growth Strategy of Core Affiliates
• Key Financials
31 Business model of Doosan Corp. Doosan Corp.
• Operating HolCo that has its own business OperatingOperating Entity Entity cashflow and growth engines – Structure that grows with affiliates
• Investment vehicle that constantly restructures InvestmentInvestment biz. portfolio to maximize ROIC and IRR VehicleVehicle
• Value-Adding Service Provider through IntangibleIntangible Value Value management capability and IP* offering to CreationCreation affiliates
* Intellectual Property: Core technology license, brand license, etc. 32 Strategic direction for Operating Entity Doosan Corp.
• Existing biz. : focus on maximizing cash flow based on market leadership
– Electro-Materials : restructure product portfolio with more focus on high value-added products – Liquor : Improve soju M/S by reinforcing marketing capability – Fashion : Expand existing product lines – Spin-off Techpack and Publishing
• New biz. : continuously explore and develop new growth business – Doosan motrol : Develop comprehensive parts business in ISB (Acquired 94% share) – Glonet : Develop comprehensive logistics service business
33 Financial plan (Operating Entity) Doosan Corp.
Revenue EBITDA (T KRW) (B KRW)
426 3.1 CAGR CAGR 13.0% 23.5% 326 2.4 270 1.9 2.0 1.6 204 183
'08 '09 '10 '11 '12 '08 '09 '10 '11 '12
34 Intangible Value Creation Doosan Corp.
• Manage and provide Doosan brand value BrandBrand royalty/ royalty/ –Payment from 6 affiliates using Doosan brand LicenseLicense Fee Fee –0.2% ~ 0.5% of revenue will be paid upon the valuation of Doosan brand
• License fee for acquired core technology
• Provide management capability to affiliates SharedShared Service Service –Restructuring skill and capability to improve asset efficiency –Operational improvement : TOP*, PSM*, DTC*, etc. –Management infra : strategy, talents, system, etc.
• IT, Accounting, Treasury, Internal Control, etc
* TOP : Total Operational Performance, PSM : Purchasing & Supply Management, DTC : Design to Cost 35 DHI's major business lines DHI
(B KRW)
Revenue* Major products (2008) • Nuclear Steam Supply System 5,034 • Thermal power boilers Power • Heat Recovery Steam Generators (HRSG)
• EPC Services
• Multi-stage flash distillation system 471 Desalination • Reverse osmosis filtration system
• Engineering, Procurement, Construction
• Power plant turbine shafts 651 • Steel mill work rolls Casting & forging • Marine engine crankshafts
• Nuclear/thermal power plants 812 • Irrigation and water treatment
Construction • High-speed railways
* Incl. overseas
36 Key strategy DHI
(T KRW) Order Market size target* Strategic direction (`08~12) (`08~`12) • Coal/ nuclear generation industry starts picking up 1,150~1,350 due to oil price hike 47 Power (1,000GW) • Expand EPC capability and maximize synergy with Doosan Babcock • Secure core technology and build manufacturing base in Vietnam
• Demand for desalination increases from Middle East 60 8 • Core technology for RO-type desalination and Desalination diversified market was acquired by M&A of AES • Enter the market of Membrane type Water treatment
• Continued order for Crankshaft, core part of Casting & shipping engine 13 4 Forging • Capacity expanded in Korea and Romania to support growth
• Focus on generation plant and LNG tank in 700~800 domestic market Construction 9 (Domestic 500) • Expand to Middle East and Asia with focus on plant and related development business
* Incl. overseas 37 Financial plan (DHI, overseas included) DHI
Order received Revenue EBITDA
(T KRW) (T KRW) (B KRW)
Order 27.0 25.0 1,668 received 23.2 CAGRCAGR 21.4 CAGRCAGR 15.5 17.0%17.0% 13.5 26.5%26.5% 11.9 1,355 16.8 13.7 12.7 12.5 10.7 1,156 11.7 8.1 7.2 823 652
‘08 ‘09 ‘10 ‘11 ‘12 ‘08 ‘09 ‘10 ‘11 ‘12 ‘08 ‘09 ‘10 ‘11 ‘12
38 DI's major business lines DI (B KRW) Revenue* Major product line (2008)
• Excavator • Wheel Loader 4,771 Construction • Mini excavator • SSL** equipment • ADT**
• Turning center • NC boring 1,154 Machine • Machining center machine
tools • Automation • EDM**
system
• Forklift • Forklift 551 - Combustion - Electric Industrial engine type reach type vehicle - Electric motor type
• Bus/truck diesel • Marine engine 630 engine • Electricity Engine • Excavator/forklift generator
diesel engine
* incl. overseas ** SSL (Skid Steer Loader), ADT (Articulated Dump Truck), EDM (Electric Discharge Machine) 39 Key strategy DI
(T KRW)
Market size Revenue* Strategic direction (`12) target (`12) • Pursue global top 3 • Excavator 51 • Clear #1 in China (excavator + wheel loader) Construction 9.9 • Wheel loader 18 • Top-tier player in emerging markets Equipment • Synergy maximization with newly acquired
companies (DII, Moxy, etc)
• Total 27 • Pursue global top 3 Machine • Strengthen positioning with focus on high-end - Turning center 10 2.2 Tools product - Machining center 13 • Explore additional growth engines in new biz.
• Global Production : Expand facilities in China Industrial • 17 0.9 and Europe
Vehicle • Enhance product lineup
• Establish new growth platform Engine • 186 1.4 - JV in China, Expand CNG engine biz.
* incl. overseas
40 Financial plan (DI, overseas included) DI
Revenue EBITDA (T KRW) (B KRW)
16.1 CAGRCAGR 2,530 CAGR 18.6%18.6% CAGR 13.4 27.4%27.4% 11.6 1,977
9.5 1,588 8.3 1,169 960
'08'09'10'11'12 '08'09'10'11'12
41 Strategic direction of other key affiliates
Strategic direction Revenue Growth
(T KRW) 5.0 •Become Top 5 in Korea by ’12 Construc-Construc- •Build stable portfolio by expanding non- CAGRCAGR tiontion 24.2%24.2% housing biz. (civil engineering & plant) 2.0 •Improve profitability by reinforcing sourcing & design management capability
2.9 •Establish optimal production system CAGRCAGR 11.2%11.2% EngineEngine •Enter medium speed engine market in full 1.9 scale •Seek opportunity to enter into low/medium speed engine market for generator
•Enhance target market through global 1.7 expansion strategy MecatecMecatec CAGRCAGR •Boost small/medium CPE market to 20.7%20.7% stabilize plant in Vietnam 0.8 •Secure technology for high-end CPE •Expand specialized plants with focus on energy and petrochemical ’08 ’12 42 Table of contents
• Change of Doosan
• Doosan's Management Direction
• Growth Strategy of Core Affiliates
• Key Financials
43 2008 Key Financials of Doosan
Debt to EBITDA Debt to Equity Ratio ICR
5.6 2.9 87% 83% 2.4 69% 71% 4.0
Domestic Incl. Domestic Incl. Domestic Incl. Overseas Overseas Overseas
: excl. FX evaluation impact
* Net Debt
44 E.O.D
45