CORPORATE

ANALYSIS International Business Analysis

A corporate financial analysis of Hyundai

Motor Company.

Tom Harris EC221

Introduction

Hyundai Motor Group is a South Korean automotive manufacturer headquartered in the country’s

capital, Seoul. The company was founded in 1967 and acquired rival Kia Motors 1998. It was the

fourth largest vehicle manufacturer in 2012, OICA (2013). In 2012, Hyundai and Kia sold 7.12 million

units, an 8 percent increase on 2011, Hyundai (2014).

The group have established a more solid global production network with the completion of a third

plant in China and a new plant in Brazil, meaning they now have 30 plants in 9 countries. This

includes the world’s largest integrated automobile manufacturing facility in Ulsan, South Korea

which has an annual production capacity of 1.6 million units, CNN (2010). In 2011, repeating their

success from 2010, it was named the world’s fastest growing car brand by Interbrand, rising to 61st in

the world and rising in value to $6 billion, Digital Journal (2011). Like many companies in the

automotive industry Hyundai Motor Group is undertaking steps to create a more environmentally

friendly vehicular portfolio. They’re currently using a collection of innovative technologies they call

‘Blue Drive’ to help improve fuel consumption and reduce emissions, Hyundai (2014).

Key Performance Indicators

Indicators 2010 2011 2012 2013

Sales (Millions of ₩) 66,985,271 77,797,895 84,469,721 87,307,636

Operating Profit (Millions of ₩) 5,918,492 8,075,477 8,440,601 8,315,497

Operating Profit Margin (%) 8.84 10.38 9.99 9.52

Dividend per Share (₩) 1,404.56 1,093.44 1,250.46 1,511.27

Current Ratio 1.38 1.48 1.67 1.84

As seen in Appendix 1, Hyundai Motor Company saw its sales revenue rise in 2013 from

₩84,469,000,000 in 2012 to ₩87,307,636,000,000, an increase of 3.36%. This represents slower

sales growth than between 2010 to 2011 and 2011 to 2012 which were 16.14% and 8.58%

respectively (Appendix 2) and can be attributed to a slowdown in the global auto market due to

ongoing economic difficulties in Europe and the U.S. as well as a downturn in the large Indian market

in which Hyundai is the third largest producer of passenger vehicles, where high interest rates and

the subsequent increase in the cost of borrowing have caused sales to fall by 6.7%, Society of Indian

Automobile Manufacturers (2013, as cited by BBC, 2013). Sales are forecast to grow by 10.01% for

2014 as well as breaking the ₩100 trillion barrier in 2015 with sales expected to reach just under

₩103 trillion as illustrated below. However if you were to factor in global inflation (estimated at 4%)

2014 ‘real sales’ are forecast to be ₩92,207,866,560,000 and ₩98,701,202,976,000 in 2015, with

the ₩100 trillion barrier being broken down a year later than in normal terms.

In ‘normal’ and ‘real’ terms the outlook for Hyundai sales growth looks promising in the short term

future. This will most likely be due to an increase in demand from BRIC (Brazil, Russia, India and

China) economies following their high growth in gross domestic product (GDP) and disposable

income as well as new Government scheme’s such as the Automotive Mission Plan (AMP) in India

that aims to help suppliers through taxation, BBC (2013). In addition to this, the Eurozone and U.S.

are expected to continue to recover and subsequently boost sales further. This is supported by

McKinsey (2013) who explains that this profit shift is already happening; in 2007, the BRICS and rest

of the world (minus the U.S. Canada, Mexico, Japan, S. Korea and Europe) accounted for 30 percent

of global profits whereas in 2012, they accounted for nearly 60 percent with sales in these regions

up 65 percent. More than half of this growth came from China.

A table to show Hyundai’s sales revenue (2010-2013):

2010 2011 2012 2013

Sales (Millions of ₩) 66,985,271 77,797,895 84,469,721 87,307,636

% Change - 16.14 8.58 3.36

A table to show Hyundai’s forecast sales revenue (2014-2018):

2014 2015 2016 2017 2018

Sales (Millions of ₩) 96,049,861 102,813,753.1 109,577,645.2 115,270,059.1 122,005,673.6

% Change 10.01 7.04 6.58 5.19 5.84

The cost of sales for 2013 totalled ₩67,859,491 million up 4.45% on 2012 (Appendix 1). They have

largely increased in line with the increase in sales revenue which is reflected by a relatively static

gross profit margin that fluctuates between 21.03% and 24.29% during the period 2010 to 2018

(2014-2018 forecast figures). This would suggest that the additional costs that were incurred were

variable costs associated with an increase in production, such as: wages, utilities or raw materials as

opposed to a rise in fixed costs that would reduce the profitability of the business.

A table to show Hyundai’s cost of sales (2010-2013):

2010 2011 2012 2013

Cost of Sales (Millions of ₩) 51,265,794 58,902,023 64,967,273 67,859,491

% Change - 14.9 10.3 4.45

A table to show Hyundai’s forecast cost of sales (2014-2018):

2014 2015 2016 2017 2018

Cost of Sales (Millions of ₩)

74,710,230.5 80,294,864.6 85,879,498.7 90,874,319.4 96,348,935.1

% Change 10.1 7.48 6.96 5.82 6.02

A gross profit margin of 22.28% (down from 23.09% in 2012) means for every ₩1 received through

sales Hyundai keep ₩0.22 which is extremely healthy for a manufacturing company and allows them

to invest a sizeable amount into other areas of the business for example research and development

where Hyundai are constantly attempting to develop technologies to allow their vehicles to be

cleaner or into expanding their production capacity; In 2013 Hyundai invested ₩21,462,587 million

in to property, plant and equipment (Appendix 1). Alternatively, this could allow Hyundai to lower

their prices in attempt to extend demand in what is an elastic market. This may result in an increase

in sales and market share that should help boost overall revenue and profit. For example, a Hyundai

car may have an elasticity of -2, this combined with a 5% reduction in their prices could result in a

10% extension in demand.

The net profit before income or tax (operating profit) for Hyundai has grown considerably over the

last few years, increasing from ₩5,918,492,000,000 in 2010 to ₩8,315,497,000,000 in 2013 –

although this is down 1.48% on 2013 (₩8,440,601,000,000) (Appendix 1) net profit is forecast to

increase by 15.17% to ₩9,576,551,500,000 in 2014 before going beyond the ₩10 trillion mark in

2015.

A table to show Hyundai’s operating profit (2010-2013):

2010 2011 2012 2013

Operating Profit (Millions of ₩) 5,918,492 8,075,477 8,440,601 8,315,497

% Change

- 36.44 4.52 -1.48

Operating Margin %

8.84 10.38 9.99 9.52

A table to show Hyundai’s forecast operating profit (2014-2018):

2014 2015 2016 2017 2018

Operating Profit (Millions of ₩)

9,576,551.5 10,332,165.4 11,087,779.3 11,504,404.5 12,315,314.2

% Change

15.17 7.89 7.31 3.76 7.05

Operating Margin %

9.97 10.05 10.12 9.98 10.09

Overall the income statement shows that Hyundai Motor Company are in a healthy position. Their

sizeable gross profit margin of 22.28% means they should be able to absorb any sudden increase in

costs without it causing too much damage to their profitability. Whilst their profit of

₩8,993,497,000,000 in 2013 (Appendix 1) looks likely to improve in 2014 and is maintainable in the

short term according to my forecasts up to 2018.

A table to show Hyundai’s gross and net profit (2010-2013):

2010 2011 2012 2013

Gross Profit (Millions of ₩) 15,719,477

18,895,872

19,502,448

19,448,145

Net Profit (Millions of ₩)

6,001,182

8,104,863

9,061,132

8,993,497

Net Profit % Change

- 35.05

11.80

-0.75

A table to show Hyundai’s forecast gross and net profit (2014-2018):

2014 2015 2016 2017 2018

Gross Profit (Millions of ₩) 21,339,630.5

22,518,888.5 23,698,146.5

24,395,739.7

25,656,738.5

Net Profit (Millions of ₩)

10,523,472

10,967,789

11,698,959

12,686,105

13,273,848.5

Net Profit % Change

17.01

4.22 6.67

8.84 4.63

0.00

20,000,000,000,000.00

40,000,000,000,000.00

60,000,000,000,000.00

80,000,000,000,000.00

100,000,000,000,000.00

120,000,000,000,000.00

2010 2011 2012 2013 2014 2015 2016 2017 2018

A graph to show Hyundai's sales revenue, cost of sales and net profit for the period 2010 to 2018

Cost of sales Profit Sales Revenue

According to Yahoo Finance (2014) Hyundai have 418,514,000 shares floating on the stock exchange.

The amount earned by the company per share, provided the number of shares has stayed constant,

has risen by almost half of 2010 figure. In 2010 the earning per share (EPS) figure stood at

₩14,338.37 after the company posted net profits of ₩6,001,182,000,000 (Appendix 2). The EPS

figure then rose by 35.05% in 2011, 11.8% in 2012 before slightly dipping in 2013 where a net profit

of ₩8,993,497,000,000 (Appendix 1) led to an EPS figure of ₩21,487.78. Hyundai’s impressive

growth and performance is forecast to increase in the medium term and this is reflected by growing

EPS figures that are forecast to increase on average by 8.19% over the next 5 years, reaching

₩31,714.65 per share in 2018 assuming no additional shares are issued.

As expected due to strong performance dividends paid out by the company have remained healthy.

In 2013, the dividend per share for shareholders was ₩1,511.27 which was over a 20% increase on

the previous year where it was ₩1,250.46 which works out at approximately $1.42 and $1.18

respectively using a rate of 1₩=$0.00098, Oanda (2014). Over the next 5 years, dividends are

forecast to grow on average by 5.03% reaching a dividend per share ₩1,951.36 or alternatively

$1.91 at today’s exchange rate. The average dividend per share over the next five years is ₩1712.94

or $1.68 which represents a sizeable for return for a low risk investment.

The figures suggest Hyundai Motor Company are adopting a stable dividend policy and are aiming to

share the company’s earnings with its shareholders showing they value their investors. The pay-out

ratio stays the same throughout our forecast at 0.06 decreasing from 0.07 in 2013. This

communicates that the short term outlook for the company is one of stable, sustainable growth as a

result of regular annual investment which hasn’t changed much in the last four years; fluctuating

between ₩8,631,153million (2010) (Appendix 2) and ₩6,620,732million (2013) (Appendix 1).

A table to show Hyundai’s earnings and dividends per share (2010-2013):

2010 2011 2012 2013

Earnings per share (₩) 14,338.37

19,364.61

21,649.38

21,487.78

% change in EPS

-

35.05

11.8

-0.75

Dividend per share (₩)

1,404.56

1,093.44

1,250.46

1,511.27

% change in DPS

- -22.15

14.36 20.86

Dividend per share ($) 1.24 0.94 1.18 1.42 A table to show Hyundai’s forecast earnings and dividends per share (2014-2018):

2014 2015 2016 2017 2018

Earnings per share (₩) 25,143.29

26,204.88

27,951.83

30,310.38

31,714.65

% change in EPS

17.01

4.22

6.67

8.44

4.63

Dividend per share (₩)

1,434.22

1,643.14

1,735.02

1,800.96

1,951.36

% change in DPS -5.10 14.57

5.59 3.80

8.35

Dividend per share ($) 1.41 1.61 1.70 1.76 1.91

A graph to show the earning per share and divided per share for Hyundai Motor Company

throughout the period 2010-2018:

As would be expected by a well performing business, Hyundai Motor Company have seen both their

current and non-current assets increase over the period of 2010-2013. In 2010 the assets of the

company totalled ₩94,714,131million whereby non-current assets were ₩51,193,977million and

current assets were ₩43,520,154million (Appendix 2) compared with 2013 where the assets of the

company totalled ₩133,421,479million, with non-current assets equalling ₩74,565,374million

whilst current assets were ₩58,856,105million (Appendix 1) representing a 40.87% growth in assets.

This is mainly as a result of growth in their short term financial instrument assets and financial

services receivables.

Total liabilities have also increased in that period from ₩61,826,158million in 2010 (Appendix 2) to

₩76,838,690million in 2013 (Appendix 1), an increase of 24.28%, however, the current liabilities of

the business have only increased 1.51% from ₩31,445,486million in 2010 (Appendix 2) to

₩31,919,682million (Appendix 1) which shows that the company have switched to longer term

financing options which appears to have been done through increasing debentures or bond liabilities

rising from ₩20,276,590million in 2010 to ₩29,322,780million in 2013 (Appendix 2,1).

A table to show the breakdown of Hyundai’s assets and liabilities (2010-2014):

2010 2011 2012 2013 2014

Current Assets (Millions of ₩)

43,520,154 48,926,350 54,847,586 58,856,105

64,435,289.2

Non-Current Assets (Millions of ₩)

51,193,977

60,553,625

66,690,228

74,565,374

82,313,499.5

Total Assets(M₩) 94,714,131

109,479,975 121,537,814

133,421,479

146,507,361.3

Current Liabilities (Millions of ₩)

31,445,486 33,163,508 32,835,699 31,919,682 32,614,788.5

Non-Current Liabilities (Millions of ₩)

30,380,672 35,988,765 40,784,540 44,919,008 50,085,299.5

Total Liabilities (M₩) 61,826,158 69,152,273 73,620,239 76,838,690 82,702,078.4

The shift from short term financing to medium to long term financing is evident by the increasing

current ratio; a higher figure indicates that a business is able to pay its short term debts easier. For

Hyundai this figure has increased from 1.38 in 2010 to 1.48, 1.67 and 1.84 in 2011, 2012 and 2013

respectively. It could be argued that a figure of 1.84 is a little high and means that the company has

too much finance tied up in current assets and so could look to reinvest or distribute more to

shareholders.

However, not all of these current assets are able to be turned into cash quickly so an ‘Acid Test’ acts

as a better indicator of the company’s ability to pay its debts and is especially important for Hyundai

as manufacturing companies normally have a large amount of their assets tied up in

stock/inventories. For the same period, Hyundai’s acid test figures are: 1.1, 1.17, 1.33 and 1.45

respectively which still draw a healthy picture of the company’s finances.

A table to show Hyundai’s current and acid test ratios (2010-2014):

2010 2011 2012 2013 2014

Current Ratio 1.38

1.48 1.67

1.84 1.98

Acid Test Ratio 1.10

1.17 1.33

1.45 1.56

As I have mentioned above Hyundai have shifted to being longer term finance which is illustrated by

the improving current and acid test ratios and is possible due to their BAA1 rating (Hyundai, 2014)

which means they can repay loans with a low interest rate. This switch hasn’t affected the long term

stability of the business which is important to you as an investor. The gearing ratio, which measures

the proportion of assets invested in a business that are financed by borrowing has actually

decreased; in 2010 the figure stood at 0.48 before slowly decreasing to 0.47, 0.46 and 0.44 in 2011,

2012 and 2013 respectively which indicates there is a lower risk of the company defaulting on its

interest and debt repayments as well as being less vulnerable to downturns during the business

cycle. The gearing ratio may still seem a little high but it is on a downward trend and is safe due to

the company’s predictable cash flow so this shouldn’t cause any reduction in dividends to

shareholders.

The percentage of the company’s assets that are provided through debt is also falling; with their

debt ratio figures moving from 0.65 in 2010 to 0.58 in 2013 whilst being forecast to be 0.56 in 2014.

In addition to this, profits are more capable of servicing debts and other financial costs; the interest

coverage ratio examines the relationship between operating profit and interest paid and is also

showing improvement. In 2010 the interest coverage figure stood at 3.44, whereas in 2013 it was at

5.76 which means it’s a lot easier for the company to pay off their debts i.e. it’s taking a smaller

chunk out of their operating profit thus providing a smaller burden.

A return on capital employed figure illustrates the efficiency in which it employs its capital.

Therefore a higher ROCE figure is favourable. Hyundai’s ROCE peaked in 2011 at 10.58% before

steadily dropping to 8.19% in 2013, while it’s forecast to increase slightly to 8.43%. To an investor

the stability is a good sign although Hyundai will want the figures to trend slightly upward and thus

should endeavour to employ capital more effectively.

A table to show Hyundai’s debt, gearing and interest coverage ratios (2010-2014):

2010 2011 2012 2013 2014

Debt Ratio 0.65

0.63 0.61 0.58 0.56

Gearing Ratio 0.48

0.47 0.46 0.44 0.44

Interest Coverage Ratio

3.44 4.57 5.08 5.76 6.74

A table to how Hyundai’s return on capital employed in millions of ₩ unless specified (2010-2014):

2010 2011 2012 2013 2014

Operating profit (before interest & Tax)

5,918,492

8,075,477

8,440,601

8,315,497

9,576,551.5

Equity 32,887,973 40,327,702

47,917,575 56,582,789 56,582,789

Non-Current Liabilities 30,380,672

35,988,765

40,784,540 44,919,008 49,537,430.8

Capital Employed

63,268,645

76,316,467

88,702,115

101,501,797

113,635,020.8

ROCE (%) 9.38 10.58 9.52 8.19 8.43

The accounts of Hyundai Motor Company illustrate a stable business, which with their forecast

sustainable growth, should provide a healthy return on a low risk investment. This is reflected in

their BAA1 credit rating, approved to them by Moody’s which is defined as having adequate credit

quality and low expectation of investment risk. From analysing the accounts of the company it is

clear to me that they have a positive short to medium term future as sales and production increase

on the back of BRIC demand. In regards to their long term health, the company should also stand in

good stead due to their ongoing investment, although not massive, it has been clever, spending it on

plants and equipment to boost production capacity ahead of this expected demand growth and

quality as well as in intangible assets and joint ventures to maintain a technological edge over its

rivals which will play an ever-increasing role as greater emphasis is placed on green tech and low fuel

emissions. In my opinion, Hyundai provides a sound, low risk investment with the potential for

sizeable growth.

References

OICA, (2014) Table 1 World Motor Vehicle Production. OICA [Online] < http://www.oica.net/wp-

content/uploads/2013/03/worldpro2012-modification-ranking.pdf> [Accessed 2/05/2014]

Hyundai (2014) Global News [Online] < http://org-

www2.hyundai.com/in/en/MediaCenter/GlobalNews/DF_WW_GLOBALNEWSVIEW_130102_2.html

> [Accessed 2/05/2014]

Taylor, A. (2010) ‘Hyundai smokes the competition’ CNN, January 5th 2010 [Online]

http://money.cnn.com/2010/01/04/autos/hyundai_competition.fortune/index.htm [Accessed

3/05/2014]

Digital Journal (2011) Hyundai fastest growing car brand two years running [Online] <

http://www.digitaljournal.com/pr/447422> [Accessed 4/05/2014]

Hyundai (2014) Blue Drive [Online] < http://org-

www2.hyundai.com/in/en/MediaCenter/GlobalNews/DF_WW_GLOBALNEWSVIEW_130102_2.html

> [Accessed 2/05/2014]

BBC (2013) Indian car sales decline for the first time in a decade [Online] <

http://www.bbc.co.uk/news/business-22088978> [Accessed 5/05/2014]

McKinsey (2014) The road to 2020 and beyond: What’s driving the global automotive industry? New

York: McKinsey & Company

Yahoo (2014) Hyundai Motor Company [Online] <

http://finance.yahoo.com/q/ks?s=HYMTF+Key+Statistics> [Accessed 6/05/2014]

Oanda (2014) Currency Converter [Online] <http://www.oanda.com/currency/converter/>

[Accessed 10/5/2014]

Hyundai (2014) Financial Information [Onlne] <

http://worldwide.hyundai.com/WW/Corporate/InvestorRelations/FinancialInformation/CreditRating

s/Domestic/index.html> [Accessed 8/05/2014]

Appendices

Appendix 1: Hyundai Motor Company Accounts 12/13 (Source: Hyundai

Financial Information,

http://worldwide.hyundai.com/WW/Corporate/InvestorRelations/FinancialInf

ormation/CreditRatings/Domestic/index.html)

HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2013 AND 2012

ASSETS NOTES December 31, 2013 December 31, 2012

(In millions of Korean Won)

Current assets:

Cash and cash equivalents 19 ￦ 6,872,430 ￦ 6,759,338

Short-term financial instruments 19 14,875,288 12,384,057

Trade notes and accounts receivable 3,19 3,485,345 3,686,824

Other receivables 4,19 3,118,386 2,304,410

Other financial assets 5,19 507,821 109,299

Inventories 6 7,073,116 6,772,864

Current tax assets 54,845 34,575

Financial services receivables 13,19 21,178,591 20,867,467

Non-current assets classified as held for sale 8 22,347 23,307

Other assets 7,19 1,667,936 1,905,445

Total current assets 58,856,105 54,847,586

Non-current assets:

Long-term financial instruments 19 35,495 1,359

Long-term trade notes and accounts receivable 3,19 43,309 43,801

Other receivables 4,19 1,127,839 1,036,609

Other financial assets 5,19 2,731,884 1,594,464

Property, plant and equipment 9 21,462,587 20,739,858

Investment property 10 263,984 282,832

Intangible assets 11 3,129,090 2,883,218

Investments in joint ventures and associates 12 14,694,995 13,117,731

Deferred tax assets 32 521,399 489,080

Financial services receivables 13,19 19,835,016 18,626,764

Operating lease assets 14 10,564,876 7,830,088

Other assets 7,19 154,900 44,424

Total non-current assets 74,565,374 66,690,228

Total assets ￦ 133,421,479 ￦ 121,537,814

(Continued)

HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES

LIABILITIES AND EQUITY NOTES December 31, 2013 December 31, 2012

(In millions of Korean Won)

Current liabilities:

Trade notes and accounts payable 19 ￦ 6,722,740 ￦ 6,841,326

Other payables 19 4,687,490 4,542,007

Short-term borrowings 15,19 5,292,798 6,781,749

Current portion of long-term debt and

debentures

15,19 8,685,254 7,912,341

Income tax payable 605,280 550,847

Provisions 16 1,782,937 1,768,014

Other financial liabilities 17,19 144,069 148,311

Other liabilities 18,19 3,999,114 4,291,104

Total current liabilities 31,919,682 32,835,699

Non-current liabilities:

Long-term other payables 19 15,964 8,271

Debentures 15,19 29,322,780 26,370,689

Long-term debt 15,19 4,666,030 4,142,473

Net defined benefit liabilities 33 389,306 821,749

Provisions 16 5,122,982 5,240,744

Other financial liabilities 17,19 440,113 356,193

Deferred tax liabilities 32 3,352,352 2,362,063

Other liabilities 18,19 1,609,481 1,482,358

Total non-current liabilities 44,919,008 40,784,540

Total liabilities 76,838,690 73,620,239

Equity:

Capital stock 20 1,488,993 1,488,993

Capital surplus 21 4,130,668 4,158,988

Other capital items 22 (1,128,779) (1,128,779)

Accumulated other comprehensive income 23 (834,036) (473,373)

Retained earnings 24 48,274,239 39,993,230

Equity attributable to the owners of the

Parent

Company

51,931,085 44,039,059

Non-controlling interests 4,651,704 3,878,516

Total equity 56,582,789 47,917,575

Total liabilities and equity ￦ 133,421,479 ￦ 121,537,814

(Concluded)

Appendix 2: Hyundai Motor Company Accounts 11/10 (Source: Hyundai

Financial Information,

http://worldwide.hyundai.com/WW/Corporate/InvestorRelations/FinancialInf

ormation/CreditRatings/Domestic/index.html)