4q 2016 earning release - hyundai merchant marine · 2 disclaimer the financial information of...

Hyundai Merchant Marine4Q 2016 Earning Release

2

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Given the changing nature of global economy, politics and/or other conditions, there may be delays,

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Further, Hyundai Merchant Marine is in no way responsible for supplement or amend any information

contained herein.

3

Table of Contents

4Q 2016 Review1

2 2017 Profit Enhancement Plan

3 Appendix

4

4Q 2016 Review1

1.1. Profit and Loss

1.2. Financial Position

1.3. General Review

5

1. 4Q 2016 Review _ 1. Profit and Loss

5

Revenue increased by 18% QoQ,Operating Margin improved by 31.5% QoQ

[Consolidated, Unit : KRW 100 Mil.]

2016 4Q 2016 3Q QoQ 2015 4Q YoY

Revenue 12,716 10,784 17.9% 12,426 2.3%

COGS 13,777 12,265 12.3% 12,939 6.5%

SG&A 800 822 -2.7% 821 -2.6%

Op.Income

-1,861 -2,303 - -1,334 -

Op.Margin

-14.6% -21.4% 31.5% -10.7% -36.3%

Utilization Rate 79.3% 72.7% 9.1% 80.1% -1.0%

1. Revenue

• Transported volume increased by 30% QoQ(Trans Pacific : 34.7%↑, Intra Asia : 43.2%↑)

• Load factor improved by 9.1% QoQ

2. Operating Income

• Operating loss narrowed due to revenue increase and utilization improvement in 4Q

3. Operating Margin

• Operating margin improved by 31.5% QoQ

6

Item 2014 2015 2016

Assets

Total 72,658 59,425 43,981

Current 16,320 11,512 12,899

NonCurrent

56,337 47,913 31,082

Liabilities

Total 65,802 56,604 34,193

Current 38,690 32,122 8,103

NonCurrent

27,112 24,483 26,090

Equity Total 6,855 2,821 9,788

Debt to Equity Ratio

960% 2007% 350%

Debt to Equity Ratio improved to below 400%Impaired capital was recovered

1. Assets

• Disposal of business segment and securities

→ KRW 1.5tn ↓ (compared to 2015)

2. Liabilities• Debt adjustment , debt repayment

→ KRW 2.2tn ↓ (compared to 2015)

3. Equity

• Debt-equity swap, gains on disposal of securities

→ KRW 0.7tn ↑ (compared to 2015)

4. Debt to Equity Ratio(D/E Ratio)

• D/E ratio and impaired capital were improved by debt repayment and debt-equity swap

1. 4Q 2016 Review _ 2. Financial Position

[Consolidated, Unit : KRW 100 Mil.]

7

US S/C Signing Period

• HJS court receivership(Sept) • Gov’t shipping enhancement policy announced(31st Oct)

(March)(April)

(May)meeting(June)

• Adjustment of charter hire(June)

2016

1Q

• Financial risk : Impaired capital, bond default

• Stock : marked on the administrated list

• Credit rating : degraded to D

• Loss of valued customers

• Low margin freight rate

• Disposal of dedicateddry bulk business

• Bond holders meeting→ maturity extension

to avoid default

• Enhancing cash flow

• Strengthening customerrelations management

2016

2Q

• Disposal of securities : Hyundai Securities (KRW 1.2tn)

• Preparation stage for VoluntaryBusiness Normalization Agreement(VBNA)

• Attempts to join anAlliance(VBNA prerequisites)

• Renegotiation of charter hire

• Efforts to retain customer

• Sale of HD securities : KRW 1.2tn

• Bond adjustment :KRW 0. 8tn

• Charter hire :(20% adjusted, KRW 0.43tn)

• Extension of bond maturity

• Enhance cash flow

• Sales strategy : Increase NVOCC portion

IssueImpacts to

Sales ActivitiesImpacts toCash Flow

HMM Strategy

Risk magnified

Overcoming Risks

1. 4Q 2016 Review _ 3. General Review

• Signing of MOU to join 2M alliance(July)• Debt-equity swap(July) • Change of major shareholder(H/E → KDB)(July)

• Fleets deployment against HJS crisis(Sept)

• Business growth strategy(Dec)• Signing of HMM+K2 MOU(Jan ‘17)

8

2016

3Q

• Voluntary Business Normalization Agreement :→ Satisfied prerequisites

• Debt-equity swap→ completed in July

• Major shareholder : → changed to KDB

• Freight rates recovery by GRI

• Fleets deployment against HJS crisis

• Active fleet operation toimprove profitability

• Debt-equity swap :D/E ratio 2007%→ 186%

• Debt conditionadjustment :

→ Enhanced cash flow

• 2M+HMM strategic cooperation

• Strategic fleet operation in the Intra Asia route

2016

4Q

• Business growth strategyannounced

→ Asia/US focused ocean carrier→ Target : market share 5% &

operating margin 5% by 2021

• Sales expansion→ KOR-CHN/KOR-JPN/

Intra Asia (HMM+K2)

• Sales competitiveness→ Acquiring key location

terminals

• HMM + K2 consortium→ cost saving U$ 5m p.a.

• Gov’t’s support forshipping Industry

• Target setting for the future Business / Vision

• Service expansion → 2M+HMM & HMM+K2

Sustainable business basis

Business competitiveness

Debt repayment Capability

US S/C Signing Period

(March)(April)

/HPNT(May)meeting(June)

• Adjustment of charter hire(June)

• HJS court receivership(Sept) • Gov't shipping enhancement policyannounced. (Oct)

• Signing of MOU to join 2M alliance(July)• Debt-equity swap(July) • Change of major shareholder(H/E → KDB)(July)

• Fleets deployment against HJS crisis(Sept)

• Business growth strategy(Dec)• Signing of HMM+K2 MOU(Jan ‘17)

IssueImpacts to

Sales ActivitiesImpacts toCash Flow

HMM Strategy


Stable basis for growth

9

In 2016, HMM successfully established sustainable business platformand secured business competitiveness to maximize profit

Set up sustainable business platform

Prepared stable basis for growth

Enhanced Debt repayment capabilities

Secured Business competitiveness

• D/E ratio : 2007% to 350% • Corporate governance : Major shareholder

changed to state-run Korea Development Bank(KDB)

• Increased importance of the Korean flag ocean carrier after HJS crisis

• Government’s detailed plan to revive shippingindustry

• 2M+HMM Strategic cooperation• HMM+K2 Consortium• Acquiring key location terminal

(TTI,TTIA, Tokyo, Kaohsiung)

• Sale of the Hyundai Securities → KRW 1.2tn • Extension of Bond maturity → KRW 0.8tn• Charter hire renegotiation → KRW 0.43tn• Debt-equity swap → KRW 1.1tn• Gov’t’s support → exceeding KRW 0.7tn


2017 Profit Enhancement Plan2

10

2.1. Reinforcing Business Competitiveness

2.2. Enhancing Debt Repayment Capability

2M+HMM

Strategic Cooperation

HMM+K2 Consortium

Acquiring Key Terminal

Vessel Cost RestructuringNew Credit Rating

Profitmaximization

Reinforcing business competitiveness

Enhancing debt repayment capabilities

Stable financial structure

- Debt to equity ratio (Below 400%)

ㆍCharter hire adjustment KRW 0.43tnㆍBond maturity extension KRW 0.8tnㆍDebt-equity swap KRW 1.1tn

New corporate governance

- Major shareholder changed to state-run KDB

Government supports

- Government plans to mobilize various resources to develop an ocean carrier into one of the world's top-five shipping companies

2. 2017 Profit Enhancement Plan

11

2M+HMM Strategic Cooperation : US/EU sales enhancement

Expectations

US WC RouteBSA(Basic Slot Allocation) Increase & Service route expansion

- Market share 4.3%→5.1% increase- Service route 2 → 3

EU RouteService frequency increase & coverage expansion- North EU Route 4→5 routes, MED 1→2 routes- Sharing market coverage of 2M

Cost Saving US/EU operating cost reduction

Other expectations- Strengthening service reliability by sharing 2M networks

- Securing US trade volume by enhanced sales capacity

Brief

1. Name

2M + HMM Strategic Cooperation(Maersk, MSC, HMM)

2. Period

‘17.4.1.~’20.3.31. (3 yrs)

3. Area

US WC/US EC/N.EU/MED/Atlantic

4. Contract structure

＊Slot exchange(US WC )

＊Slot purchase(US EC/EU/Atlantic)

12

2. 2017 Profit Enhancement Plan _1. Reinforcing Business Competitiveness

HMM+K2 Consortium : KOR-CHN/KOR-JPN/Intra Asia sales enhancement

Expectations

Space Exchange Intra Asia 450 TEU/Week, KOR-JPN 500 TEU/Week,KOR-CHN 50 TEU/Week

Feeder Cost U$ 5m (Per Annum) of cost reduction are expected by the slot exchange

New RoutesService network expansion with new 6 routes

- 5 Routes in Vietnam/Thailand, and 1 route in KOR-CHN

Other expectationsRecovery of rates by route rationalization (30 routes)Cost saving through co-investment to terminal/facilities

Brief

1. Name

HMM + K2 Consortium

2. Period

2017.Mar ~ 2019. Feb ( 2 years, automatic

extension)

3. Area

KOR-CHN/KOR-JPN/Intra Asia area

4. Contract Structure

Vessel sharing/Slot exchange/Slot purchase/co-Investment for logistics assets

13


14

Acquiring Key terminals : Reinforcing sales competitiveness & cost reduction

TTI (Total Terminal International)

TTIA (Total Terminal International Algeciras)

HPC(Hanjin Pacific Corporation)

LocationUSA

LongbeachUSA Seattle Spain Algerciras Japan Tokyo Taiwan Kaohsiung

Capacity(TEU)

3 million 0.6 million 1.86 million 0.45 million 1.2 million

Desc.Asia-North America-SouthAmerica / Strategic key location

Europe-Africa-South America Strategic key location

- Access to Japanese import market- Profit enhancement by consolidated

terminal operation

Progress Share 20% On going On going

Purpose- Widening service capability

with the Logistics Infra- Reduction of logistical cost

Europe/Africa area market expansion

- Strengthening HMM+K2 Consortium

○ Cost Saving- Logistical expense reduction

○ Stable berth operating- Reduction of waiting time and expense

○ Additional benefits from new terminal business- Business extension to the 3rd party via terminal business

< Benefits from key terminals>


14

15

Charter hire adjustment

○ Charter hire adjustment with the vessel owners (‘16.7.15)

- During 3.5 years KRW 0.43tn to be adjusted

○ Slottage cost down by 2M+HMM

- Slottage cost down by economy of scale effect

Vessel sales and leaseback

○ Gov’t announcement (‘16.10.31)

- The program helps shipping companies to secure the liquidity and minimize the costs to operate ships by selling their ships to the tonnage bank and chartering them for the long term.

- Book loss from the sales will be recovered byKorea Shipping and Maritime Transportation Co.,Ltd(tonnage bank) by way of paid-in capital increase and Convertible bond.

○ Disposed Vessels and expectations

- Disposed : 4,600 TEU 6 vsls, 8,600 TEU 4 vsls- Disposal amount : KRW 150.4 bn- Compensated Book Loss : KRW 704.3 bn(Paid-in capital increase KRW 104.3 bn,Perpetual convertible bond KRW 600 bn)

- Cash flow enhancement by low charter cost- Encashment by sale of own vessels

2. 2017 Profit Enhancement Plan _2. Enhancing Debt Repayment Capability

16

Item Summary

Purpose

• During 2016, HMM’s credit rating plunged due tothe financial risk

• After the debt restructuring, needs for new rating emerged to reflect the improved financial status

Main Evaluation

factors

• Alleviation of the financial burden by debt-equity swap

• The importance of the only ocean carrier in Korea

• Strong Support policy by the Gov’t & KDB(the largestshareholder)

Expectations

• Recovery of the market reputation, attract investors

• Ability to provide wider sales approaches(bidding, contracts, etc.)

• Enhanced financing conditions for future activities

2. 2017 Profit Enhancement Plan _ 2. Enhancing Debt Repayment Capability

BBStable

1. Credit Rating Agency

Korea Investors Service Inc. (Moody’s affiliated)

2. Credit grade

BB(Stable)Issuer Rating

3. Report date

8TH FEB, 2017

Appendix3

17

3. 1. Government supports for shipping industry

3. 2. Financial Restructuring

3. 3. Market Forecasting

3. 4. Fleet Status

3. 5. Borrowings

18

Gov’t Policy Items Fund size

New buildingsupport program

- Fund size increased from KRW 1.3tn to KRW 2.6tnKRW 2.6tn

(USD 2.4bn )

Korea Shipping and Maritime transportation Co., Ltd

- Issued capital : KRW 1tn - Sales and leaseback- Book loss from the sales will be covered by equity injection

KRW 1tn

KAMCOShipfund

- Fund Size : KRW 0.5tn per year(total KRW 1.9tn limit) KRW 1.9tn

Global MarineFund

- Co-investment with the liners for asset acquisition(terminal etc.) KRW 1tn

Korean government earmarked a KRW 6.5tn subsidy programto revive shipping industry

3. Appendix _1. Government supports for Shipping Industry

KAMCO : Korea Asset Management Corporation

3. Appendix _ 2. Financial Restructuring

□ Reduced financial burden by debt adjustment

Item Liabilities Equity Changed Condition

1. Paid-in capital increase(Debt-equity swap)

-14,006 +14,418* KRW 0.9tn : 1% interest p.a.

☞ creditor banks’ debt : payable in 10 yrswith a 5-yr grace period

☞ public bond : payable in 5 yrswith a 2-yr grace period

** KRW 0.16tn : 3% interest p.a.

Creditor banks’ Debt+Bond -11,087 +11,087

Charter hire -2,919 +2,919

Cash subscription +412

2. Liabilities converted from Charter hire and others

+4,475

Accounting Profitby Debt adjustment

6,856

(Unit : Krw 100 Mils)

Item Adjusted Amount Debt-Equity Swap Amount Changed Condition Amount

Creditor banks’ Debt+Bond(public) 20,180 11,087 *9,093

Charterage and Others 4,475 2,919 **1,556

Total 24,655 14,006 10,649

Share HolderShare Ratio(%)

2016 2Q 2016 4Q

Creditor banks 0% 39.93%

(Korea Development Bank) 0% 14.15%

Hyundai Elevator & specially related person 22.63% 0.9%

(Hyundai Elevator) 17.51% 0.5%

□ New governing structure

19

20

Source: MSI 4Q (Container / Dry bulk / Tanker)

3. Appendix _ 3. Market Forecasting

1.6%

3.7%

4.5% 4.7%4.2%

2.1%

3.5% 3.3%2.7%

1.9%

-0.5% 0.2% 1.2%

2.0%2.3%

2016 2017 2018 2019 2020

수요증가율 공급증가율 수급

Container

Dry bulk

1.5%

3.5%

2.4%

1.4%1.7%

3.9%

3.1%

0.4%

-0.6%

0.6%

-2.4%

0.4%

2.0%

2.0%

1.1%

2016 2017 2018 2019 2020

수요증가율 공급증가율 수급Balance

1.6%

3.5%3.8%

3.0%2.6%

4.4%

5.2%

2.9%

1.3%1.3%

-2.8%

-1.7%

0.9%1.7% 1.3%

2016 2017 2018 2019 2020

수요증가율 공급증가율 수급Demand

Tanker

Demand

Demand

Supply

SupplySupply

Balance

Balance

21

1. Freight Index Trend

▶SCFI Index rebounded from the lowest bottom point on March 2016 (434)

▶February 2017 Index improved by 79% YoY


Source : Shanghai Shipping Exchange, , MEIC, HMM edit

SCFI 2016.12 2017.1 2017.2

Composite Index 810 970 905

% Change (YoY) 62% 40% 79%

YEAR JAN FEBAverage

Annual rate

2014 1,175 1,069 1,069

2015 1,051 1,066 718

2016 694 507 644

2017 970 905 938

% Change(YoY) 40% 79% 46%

<Historical SCFI trend>

22

Idling Fleet vs % of Total Fleet

2. Container supply market

Idling rate 6~7%

Container vessel demolition record2016 Nov 2016 Dec 2016 Jan 2017

선박 Size No. Teu No. Teu No Teu No. Teu(‘000) (‘000) (‘000) (‘000)

~1K 15 10 3 2 2 1 2 1

1K~3K 73 157 11 22 8 17 13 26

3K~8K 102 477 14 64 10 48 16 73

8K~10K 0 0 0 0 0 0 0 0

10K~18K+ 0 0 0 0 0 0 0 0

TOTAL 190 642 28 88 20 67 31 101

Demolition rate 3.3%

Source : MEIC(Maritime Exchange Information Center)

Newbuilding Contract(TEU)

Source : MEIC(Maritime Exchange Information Center)

91%


23

ITEMOwned Vessels Chartered-in Vessels Total

No Capa. No Capa. No Capa.

Container

> 10,000TEU 5 66 11 126 16 192

8,000-10,000TEU 4 34 4 34 8 68

4,000-8,000TEU 15 79 16 95 31 174

< 4,000TEU - - 8 17 8 17

Sub Total 24 179 39 272 63 451

Wet Bulk

Crude tanker 1 300 4 910 5 1,210

Other tanker 4 199 4 171 8 370

Sub Total 5 499 8 1,081 13 1,980

DRY Bulk

Capesize 2 362 9 1,606 11 1,968

Panamax - - 4 312 4 312

Supramax 2 120 11 629 13 749

Handysize - - 6 189 6 189

Heavy Lift - - 5 151 5 151

Sub Total 4 482 35 2,887 39 3,369

G.Total (Vessel No) 33 82 115

(Unit : Container 1,000 TEU, Bulk 1,000 DWT, as of 2016 DEC)

3. Appendix _ 4. Fleet Status

24

Item Fy 2014 Fy 2015 Fy 2016 YoY(2015 vs 2016)

Short-termBorrowings

5,275 6,815 0 -100.0%

Current Portion of Long-term Borrowings

24,869 17,877 1,664 -90.7%

Long-termBorrowings

18,484 17,284 16,735 -3.18%

Bond, CP 3,127 5,804 6,699 15.4%

Financial LeaseLiabilities

1,058 752 455 -39.5%

Total 52,813 48,532 25,553 -47.3%

Interest Expense 2,850 2,512 1,910 -24.0%

Borrowings 47.3% ↓, Interest expense 24% ↓

(Unit : KRW 100 Mil)

3. Appendix _ 5. Borrowings

25

Thank You

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