Annual Report 2005 Annual Report HYUNDAI MERCHANT MARINE CO., LTD. We Carry the Future! Annual Report 2005 2006.4 66 Jeokseon-Dong, Jongno-Gu, Seoul, Korea, 110-052 TEL : 82-2-3706-5114 FAX : 82-2-734-8496 www.hmm21.com Financial Highlights Contents (Unit : Million KRW) 2006 Shipping Market Prospects 004 Hyundai Business Group For the year ended December 31, 2005, 2004, 2003 2005 2004 2003 Chairwoman’s Message 006 Operating Result CEO’s Message 008 Sales 4,845,594 5,118,612 3,944,676 Operating Income 466,411 554,824 302,726 Top 5 News Items in 2005 010 Net Income 386,402 427,869 -45,308 Business Overview 012 Financial Position HMM Service Features 014 Total assets 4,814,237 4,015,015 4,120,964 HMM Global Network 028 Total debt 3,389,815 3,170,996 3,758,624 Company Data 041 Shareholder’s equity 1,424,422 844,019 362,340 (Unit : Million KRW) (Unit : Million KRW) (Unit : %) Sales Operating Income Debt Ratio 1414.58 6,000,000 600,000 1,500 5,118,615 554,824 4,845,594 466,411 5,000,000 4,644,093 1037.32 3,944,676 4,000,000 400,000 1,000 302,726 3,000,000 2,000,000 200,000 500 375.7 107,776 1,000,000 237.98 0 0 0 2002 2003 2004 2005 2002 2003 2004 2005 2002 2003 2004 2005 “Building a solid foundation, Executing a superior service” 2006 Shipping Market Prospects After 3 year booming, all the participants in the shipping market predict that the weakening supply and demand fundamentals mainly caused by rapid fleet growth and slower trade demand will drive the freight rates and ship values down for the coming years. By historical standards, however, rate levels will remain robust and most shipping companies will enjoy another profitable year even though operating costs increase and profitability margins narrow. For fleet developments, the near- term outlook remains worrisome for shipowners and operators based on the orderbook representing high portion of the existing fleet, though this is down from a peak in 2005. Looking forward we expect long-term outlook has brightened somewhat as ordering activity will moderate due to the falling freight rate and high shipbuilding price. Variables surrounding the shipping market such as oil price, port congestion, China and India effect will also affect the market trend, but it is estimated that the strength of them will be weaker than the past. After the turning point in the latter part of 2005 in the container market, the pace of decline will moderate in 2006. But, still, the delivery of new vessels including mega vessels will cause over supply this year. However, lack of facilities and efficiencies in ports and infrastructure and emerging new markets like South America, India, East Mediterranean, and Africa could offset some of over supply. Although it is expected that the over supply will cause a slower bulk market in 2006 than 2005, the slowed market could still be in favorable level comparing to ordinary years in history. China is still one of the big factors that will no doubt affect the dry bulk market. The tanker market fell back from 2004 level in 2005 owing to the global tanker demand decrease mainly driven by high oil price, it was still in favorable level that the WS(MEG/FE) remained beyond 100. The increasing fleet growth may eventually depress the market, but the phase-out of Increasing single hull tankers and the increased ton-mile demand due to oil-producing countries' political unrest “world-wide” the Profitability in Prosperous will cushion the decline in tanker rates. Shipping Market - HMM Corporate Planning Office Hyundai Business Group Chairwoman’s Message 6 7 customers, staff members and investors alike. That is my guarantee to you all. We of the Company Maximizing Value fully intend to be completely trustworthy, and will maintain the best possible relationship with fully intend to be completely trustworthy, A Message from Group Chairwoman, Hyun Jeong-eun I express my gratitude for the warm support and encouragement of customers and shareholders. This year Hyundai Merchant Marine reaches its 30th anniversary. In 1976, HMM started up in competition with the world’s shipping companies, fueled by a passionate dream, and 3 VLCCs that could not find owners in the aftermath of the oil-crisis of the day. Thanks to the devoted efforts of all staff, HMM developed by leaps and bounds year by year, and finally, became a commercial force capable of competing at the highest levels. HMM is equipped with a vast global business network, the most advanced IT system, and over 100 diverse vessels. HMM is now preparing for another advance with solid assets, and the experience to overcome difficulties. It has expertise, the confidence of clients from all over the world, and the loyal support of shareholders. All staff of Hyundai Group including HMM, will make this year one of change and innovation, and will go all out in competitive terms to raise the company profile despite uncertain business circumstances. Hyundai Group aims to achieve 20 trillion won of sales in 2010. It will establish a cutting edge business structure and a comprehensive business network. It will continue North and South economic cooperation - and will contribute significantly to national prosperity. Its aim is to establish a leading corporate culture and enhance its status. As the core affiliate company of Hyundai Group, HMM will be the vanguard in the drive to accomplish the group’s mid- and long-term vision. Hyun Jeong-eun Hyundai Business Group Chairwoman HYUNDAI MERCHANT MARINE CO., LTD. CEO’s Message 8 9 one of the world’s finest shipping firms. I ask for your continuing interest and encouragement as HMM moves forward to take its place as Advances Preparing Further A Message from President, Noh Jeong-ik Dear Customers, Last year was a meaningful year for HMM as we announced the revitalization of our drive for domestic and foreign success. In the container area, we are preparing to strengthen our competitiveness by ordering diverse types of vessels. We are acquiring large modern vessels and ordering to 9,000TEU class container vessels. We retained our position in the world container market by developing new cooperative relationships with the world’s leading shipping companies. In the bulk division, we deployed 2 VLCCs for 7 years, and stayed Korea’s No.1 LNG carrier with a successful bid for KOGAS business. Dear Valued Customer, The shipping business has been very profitable in recent years. However, from this year, a change of business circumstances may make times tougher factors to be considered are: increasing oil prices, increased vessel capacity through deployment of large-sized vessels, and subsequent increased competition for market leadership. Now is the time to prepare thoroughly for these difficulties. All staff of HMM have made efforts to strengthen the company with the philosophy of preparing for a ‘rainy day’ and seeking to improve earnings by cost cutting. Therefore, we are convinced that we can ride out any problematic business circumstances. We also believe that the uncertain market will be an opportunity which HMM can take advantage of. This 30th year is very meaningful for HMM, which started with 3 VLCCs and went on to lead the Korean economy, and to transport cargos to the world. We don’t ever forget that HMM’s 3 decade history is the result not only of HMM members efforts, but also of customer and shareholder support and encouragement. In future, all of HMM staff will continue to satisfy customers’ needs through constant business innovation. We will improve competitiveness even further, to become the finest, most profitable shipping firm possible. We look for your constant support and encouragement to achieve our declared aim. I wish you and your families a fulfilled and happy year! Noh Jeong-ik Thank you very much. HMM President & CEO HYUNDAI MERCHANT MARINE CO., LTD. Top 5 News Items in 2005 10 11 3. HMM Ordered 9 Ships in Block HMM has ordered four 8,600 TEU containerships - the largest domestic vessels ever - and five 4,700 TEU ships, from Hyundai Heavy Industries and Hyundai Samho Heavy Industries. The contract signing ceremony took place on 16th February. The 8,600 TEU ships can carry a maximum of 9,000 TEU, making HMM the first domestic shipping company to have such a capacity. TOP 5 NEWS ITEMS IN 2005 Total construction costs will be about $910 million, and the ships are scheduled for delivery between January 2008 and September 2008. HMM will operate the 8,600 TEU ships on Asia - Europe routes, and the 4,700 TEU vessels will ply the Middle East route. HYUNDAI MERCHANT MARINE CO.,LTD. 4. Expanded Co-operation with Leading Shipping Companies On September 9, HMM announced a five-year extension of The New world Alliance (TNWA), which is an alliance agreement with APL and MOL. The terms of their current alliance agreement will be extended to 31st December, 2012. 1. First Lady Names HMM’s Universal Queen Also, On October 6, TNWA announced a co-operation agreement on key trades with the Grand Alliance (GA). On November 9, HMM named its new VLCC, Universal Queen at Hyundai Heavy Industries. Approximately 600 people attended the ceremony. The agreement will significantly broaden alliance capabilities, network coverage and schedule frequencies. It will also improve service and increase choice It was the first ship naming ceremony for HMM in five years and it was particularly meaningful as Korean First Lady Kwon Yang - sook named the vessel. for both sets of customers.