Hyundai Motor Unveils Long-term Plans for Maximizing Shareholder Value, Securing Sustainable Growth
Company discloses long-term business targets prioritizing shareholder value
02/28/2019 Hyundai Motor Company<html><head><meta name="GENERATOR" content="TAGFREE Active Designer"><meta http-equiv="Content-Type" content="text/html; charset=utf-8"><title></title></head><body><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><strong><span style="color: rgb(128, 128, 128); font-family: 돋움;">- Company discloses long-term business targets prioritizing shareholder value</span><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">Invest KRW 45.3 trillion in R&D and future technologies</span><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">KRW 30.6 trillion for R&D and CAPEX</span><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">KRW 14.7 trillion for future-growth areas</span><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">- Company targets 7% operating profit margin; 9% ROE in automotive businesses</span><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">To achieve 7% operating profit margin, Hyundai will expand market share; improve cost & organizational efficiency; enhance product mix and <strong><span style="color: rgb(128, 128, 128); font-family: 돋움;">brand value</span><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">To achieve 9% ROE, Hyundai will improve profitability and increase shareholder return based on balanced investment and efficient capital <strong><span style="color: rgb(128, 128, 128); font-family: 돋움;">operation</span><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">- Secure KRW 14 ~ 15 trillion liquidity to guarantee sustainable growth</span></strong></span></strong></span></strong></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;"><strong>SEOUL, Feb. 27, 2019 -</strong> Hyundai Motor Company today unveiled plans to invest more than KRW 45.3 trillion in research and development (R&D) and <span style="color: rgb(128, 128, 128); font-family: 돋움;">future technologies over the next five years, a move aimed at leading the paradigm change facing the automotive industry.</span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">The company also suggested mid- to long-term profitability goals to reiterate its strong commitment to a management philosophy prioritizing <span style="color: rgb(128, 128, 128); font-family: 돋움;">shareholder value, and to engage in proactive communication with shareholders and markets. </span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">In a meeting with investors hosted by President and Chief Executive Officer Wonhee Lee today in Seoul, Hyundai Motor said it will achieve a <span style="color: rgb(128, 128, 128); font-family: 돋움;">mid- to long-term operating profit margin of 7 percent, and a return on equity ratio of 9 percent in the automotive business division. </span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">“With today’s announcement on our strategic investment plan, we re-emphasize Hyundai Motor’s commitment to enhancing shareholder value, <span style="color: rgb(128, 128, 128); font-family: 돋움;">improving competitiveness and profitability and stabilizing our financial structure to make it stable and healthy,” said President Lee.</span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;"><strong>Investment: R&D / Capital Expenditure</strong></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">Hyundai’s mid- to long-term investment plan will amount to KRW 45.3 trillion, including a KRW 30.6 trillion for R&D and capital expenditure <span style="color: rgb(128, 128, 128); font-family: 돋움;">on vehicle manufacturing, as well as a KRW 14.7 trillion in future-growth areas such as autonomous driving technologies, vehicle <span style="color: rgb(128, 128, 128); font-family: 돋움;">electrification and mobility services.</span></span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">Through these investments, Hyundai will make concerted efforts to spearhead the fourth industrial revolution, being a game changer in the <span style="color: rgb(128, 128, 128); font-family: 돋움;">automotive industry.</span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">Average annual investments are projected to top KRW 9 trillion over the next five years, a 58 percent increase from the last five year average <span style="color: rgb(128, 128, 128); font-family: 돋움;">of KRW 5.7 trillion.</span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">Out of the KRW 30.6 trillion, a KRW 20.3 trillion will be spent on securing competitiveness in new vehicles and products, and a KRW 10.3 <span style="color: rgb(128, 128, 128); font-family: 돋움;">trillion will be earmarked for refurbishing outdated facilities and equipment. </span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">A key part of the expenditure will be put into developing a new platform and powertrain, as well as new models embodying Hyundai’s new <span style="color: rgb(128, 128, 128); font-family: 돋움;">“Sensuous Sportiness” design philosophy. Investments will also be made for the Hyundai Motor SUV lineup. Following recent successful <span style="color: rgb(128, 128, 128); font-family: 돋움;">launches of the Kona compact SUV and the Palisade flagship mid-size SUV, a new Genesis brand SUV is set to join the range, doubling the number <span style="color: rgb(128, 128, 128); font-family: 돋움;">of SUVs from four in 2017 to eight by 2020. </span></span></span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">This year’s introduction of a Genesis SUV will further broaden Hyundai Motor’s product mix, while enhancing its brand value. The new model <span style="color: rgb(128, 128, 128); font-family: 돋움;">will build on the significant success enjoyed by the Genesis G70 premium sedan, which has received widespread accolades from industry experts <span style="color: rgb(128, 128, 128); font-family: 돋움;">and customers, including the North American Car of the Year and Motor Trend Car of the Year. With an expanded U.S. dealership network and <span style="color: rgb(128, 128, 128); font-family: 돋움;">class-leading products such as G70, the Genesis brand will reach a 4.8 percent share in the U.S. premium vehicle market this year -- a goal of <span style="color: rgb(128, 128, 128); font-family: 돋움;">31,000 units -- compared to 1.6 percent in 2018.</span></span></span></span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">To pave the way for future growth totaling KRW 14.7 trillion, Hyundai earmarked KRW 6.4 trillion for smart mobility area, KRW 3.3 trillion for <span style="color: rgb(128, 128, 128); font-family: 돋움;">vehicle electrification, KRW 2.5 trillion in autonomous driving and connectivity technologies and KRW 2.5 trillion for the development of <span style="color: rgb(128, 128, 128); font-family: 돋움;">artificial intelligence and other advanced R&D activities. </span></span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">With the automotive industry facing sea changes, a significant portion of Hyundai’s investment will be allocated to developing future <span style="color: rgb(128, 128, 128); font-family: 돋움;">technologies and solutions. The company aspires to become a Smart Mobility Solutions Provider and has a vision for delivering clean mobility. </span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><span style="color: rgb(128, 128, 128); font-family: 돋움;">Hyundai’s global partners in smart mobility include Southeast Asia’s largest ride-hailing enterprise Grab, India’s car-sharing company Revv <span style="color: rgb(128, 128, 128); font-family: 돋움;">and a US-based mobility services provider Migo. </span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">Hyundai is developing all types of electrified vehicles, from hybrid and plug-in hybrid to pure electric and fuel-cell electric models. <span style="color: rgb(128, 128, 128); font-family: 돋움;">Earlier this year, Hyundai Motor Group announced a plan to introduce 44 electrified models by 2025 with projected annual sales of 1.67 million <span style="color: rgb(128, 128, 128); font-family: 돋움;">units. Accelerated by its future investment strategy, the Group aims to spearhead global vehicle electrification and become one of the world’<span style="color: rgb(128, 128, 128); font-family: 돋움;">s top three EV manufacturers by 2025. </span></span></span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">In 2020, the company plans to introduce a new model built on a dedicated EV platform, while improving cost and technical efficiency in <span style="color: rgb(128, 128, 128); font-family: 돋움;">manufacturing EVs through wide-ranging innovations, such as battery system applications. </span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">Hyundai will also reinforce its leadership in the global hydrogen fuel-cell vehicle market, moving beyond being the first automaker to <span style="color: rgb(128, 128, 128); font-family: 돋움;">successfully commercialize FCEVs in 2013. Earlier this year, Hyundai Motor Group introduced a plan to invest approximately KRW 8 trillion in <span style="color: rgb(128, 128, 128); font-family: 돋움;">securing a 500,000-unit-a-year FCEV manufacturing capability by 2030. By being the “first-mover,” the company aims to accelerate the global <span style="color: rgb(128, 128, 128); font-family: 돋움;">community’s transition toward a hydrogen society. </span></span></span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">Hyundai is also blazing the trail in the development of autonomous and connected vehicles. </span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">While continuously upping its technologies in Advanced Driver Assistance System (ADAS) and autonomous driving, it plans to run an autonomous <span style="color: rgb(128, 128, 128); font-family: 돋움;">robot taxi program in Korea by 2021 on a trial basis. In the connected car realm, which will function as a hub in the hyper-connected future <span style="color: rgb(128, 128, 128); font-family: 돋움;">economy, Hyundai will bolster competitiveness by partnering global firms with state-of-the-art competitiveness. </span></span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">A clear road ahead toward reaching 7% operating profit margin, 9% ROE by 2022 </span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">For the first time, the company also revealed specific and ambitious profitability targets, which reflect its commitment to enhance <span style="color: rgb(128, 128, 128); font-family: 돋움;">communication and increase shareholder value. Hyundai will also implement aggressive capital management strategies to grow shareholder returns <span style="color: rgb(128, 128, 128); font-family: 돋움;">and optimize capital operation efficiency through profitability improvements. The moves include raising the return-on-equity (ROE) ratio to a <span style="color: rgb(128, 128, 128); font-family: 돋움;">stable 9 percent by 2022, compared with 1.9 percent in 2018.</span></span></span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">The strategies employed to grow the ROE ratio are designed to increase profit, boost shareholder returns, and promote policies for efficient <span style="color: rgb(128, 128, 128); font-family: 돋움;">capital management. </span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">As part of the moves to improve ROE, the company plans to boost the core automotive businesses’ operating profit margin to 7 percent by 2022, <span style="color: rgb(128, 128, 128); font-family: 돋움;">compared with 2.1 percent in 2018. To meet this target, Hyundai Motor will employ a series of strategies to improve cost structure and <span style="color: rgb(128, 128, 128); font-family: 돋움;">business efficiency, recover global market shares, and enhance its product mix and brand value across established and emerging markets.</span></span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">“Hyundai will establish a platform for its sustainable growth by increasing competitiveness-enhancing investments. Through concerted efforts <span style="color: rgb(128, 128, 128); font-family: 돋움;">at increasing diverse shareholder values, we will also demonstrate that we can reach a return on equity well within the deadline,” said <span style="color: rgb(128, 128, 128); font-family: 돋움;">President Wonhee Lee.</span></span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">The company will also continue its market-friendly efforts to boost shareholder return. Shortly after Hyundai Motor announced its progressive <span style="color: rgb(128, 128, 128); font-family: 돋움;">shareholder policy in 2014, the company bought back 1% of its shares and raised its dividend to KRW 4,000 in 2015 from KRW 1,000 per share in <span style="color: rgb(128, 128, 128); font-family: 돋움;">2013. Despite weakened profitability, the company implemented major buyback and cancellation last year as part of its efforts to keep its <span style="color: rgb(128, 128, 128); font-family: 돋움;">commitment to shareholders and the market.</span></span></span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">The company will maintain a payout equivalent to 30-50 percent of free cash flow (FCF) and similar rates of the average payouts of its peers <span style="color: rgb(128, 128, 128); font-family: 돋움;">while increasing total return to shareholders in line with profitability growth.</span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;"><strong>Liquidity Required</strong></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">The company needs to secure approximately KRW 14 ~ 15 trillion in liquidity for sustainable growth. Securing this liquidity will mean the <span style="color: rgb(128, 128, 128); font-family: 돋움;">company can ensure shareholder returns, invest in new capital expenditure and fund R&D spending. This also provides the company operating <span style="color: rgb(128, 128, 128); font-family: 돋움;">capital and buffers for contingencies, or one-off expenses, to ensure the company can enjoy sustainable and steady growth.</span></span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">In addition to ensuring sufficient minimum working capital for operation, the company believes that more than KRW 1 trillion annually should <span style="color: rgb(128, 128, 128); font-family: 돋움;">be secured to enable a more market-friendly shareholder return.</span></span></p><p style="line-height: 1.5; font-family: gulim; font-size: 9pt; margin-top: 0pt; margin-bottom: 0pt;"><br><span style="color: rgb(128, 128, 128); font-family: 돋움;">The company also needs to maintain liquidity for investment into future technologies and the development of a new model line-up to strengthen <span style="color: rgb(128, 128, 128); font-family: 돋움;">its competitiveness. For comparison, other global automotive manufacturers maintain an average liquidity of KRW 24 to 25 trillion.</span><br></span></p>
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