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3. Finance Business of Hyundai Motor GroupFinance Business of Hyundai Motor GroupFinance Business of Hyundai Motor GroupFinance Business of Hyundai Motor Group
Main Business Structure of HMG
Car MakerCar Maker Auto PartsAuto Parts
Captive Finance Arms in HMG
HMG
FinanceFinance
HCA
(US)Best Practice
Joint Venture Full Ownership
HCSHCSHCSHCS
(Korea)
3
SteelSteelConstructionConstruction
(US)Best Practice(Korea)
HCUK
(UK)
BHAF
(China)
* HCS receives management consulting fee from overseas entities
4. HCS HCA HCUK BHAF
Established 1993
(JV since 2004)
1989 2012 2012
HMG Captive Finance CompaniesHMG Captive Finance CompaniesHMG Captive Finance CompaniesHMG Captive Finance Companies
Regional
Coverage
Korea U.S.A U.K. China
Shareholders
HMC 56.5%
GECC 43.3%
HMA 80%
KMA 20%
HCS 30%
Santander UK 50%
HMUK 10%
KMUK 10%
HCS 46%
BAI 33%
BHMC 14%
HMC 7%
Financial KRW 20.4Tn GBP 693Mn RMB 4,011Mn
4
Financial
Receivables*
KRW 20.4Tn
(USD 19.3Bn)
USD 20.9Bn
GBP 693Mn
(USD 950Mn)
RMB 4,011Mn
(USD 643Mn)
Products
Auto Finance
(New car, Used car)
P-loan
Mortgage
Auto Finance
(New car, Used car)
Floor Plan
VSC
Auto Finance
(New car, Used car)
Floor Plan
Auto Finance
(New car)
* As of Dec. 2013
5. HCS Roles among HMG Captive Finance CompaniesHCS Roles among HMG Captive Finance CompaniesHCS Roles among HMG Captive Finance CompaniesHCS Roles among HMG Captive Finance Companies
Activities Purpose
Dispatching
Managerial
Personnel
• Leverage HCS’s expertise and
know-how as a finance co.
• Dispatched top management personnel
including CEOs, CFOs, CROs to HCA,
HCUK and BHAF
Current Status
Management
Know-how
Transfer
• Reinforce business
competency with overall
business management
support
• Participate in top decision-making
bodies such as BoD, EFC
• Review global monthly performance
(i.e. Sales, Profits, Funding, Risk profile)
• Full time management issue discussion
Setting Global
Protocol
• Implant DNA as a global one
company
• Organize Global Auto / Risk Forum
• Implement identical schemes for HR /
Corporate culture (i.e. Global Job Posting,
same compliance policy)
5
same compliance policy)
Market Research
/ Managing
Incorporation
• Build a foundation of long-term
global business expansion
• Proceeding incorporation of 2 finance
companies (Canada, Germany)
• Operate 5 advisory offices (Europe,
Germany, Brazil, Russia, India)
Reinforce
Strategic Global
Partnership
• Create overseas business
synergy through reinforcing
regional partnership
• Alliance with major FIs:
Santander, Societe Generale, BNP-Paribas, etc.
6. Solid Global Sales Base Superior Management DNA
Shareholding Structure and Strengths of HCSShareholding Structure and Strengths of HCSShareholding Structure and Strengths of HCSShareholding Structure and Strengths of HCS
• Structural advantage as a captive finance company of HMG providing solid sales base with
56.5%
10 years Joint Venture between HMC and GE Capital
43.3%
6
• Structural advantage as a captive finance company of HMG providing solid sales base with
a dominant market position in the domestic market
• Superior performance based on the successful Joint venture structure
• Inheritor of GE’s business management know-how
• Unparalleled corporate culture embodied in the organization
• Business synergy among 4 Hyundai Finance Companies (Capital, Card, Commercial, Life)
7. HCS Market PositionHCS Market PositionHCS Market PositionHCS Market Position
• Total Industry Asset : KRW 48 Tn
Dominant Position in Industry* HCS’s leading position
• Top credit rating in industry
• Only company to issue global bonds
• Incomparable profitability (as of 2013)
AA+
• Total Industry Op. Income : KRW 795 Bn
• Incomparable profitability (as of 2013)
– ROA: 1.9% Vs. Industry Average 1.2%
– ROE: 12.1% Vs. Industry Average 8.3%
• Superior asset quality (as of 2013)
– 30 days + DQ: 2.4% Vs. Industry Average 3.1%
HCS & Competitors’ Domestic Credit Ratings
OthersOthersOthersOthers
33%33%33%33%
BBBB
9%9%9%9%
AAAA
11%11%11%11%
HCSHCSHCSHCS
47%47%47%47%
7
Source: Financial Statistics Information System, at end of 2013
* Installment Finance Industry
AA-
A+ A+
HCS Company A Company B Company C
OthersOthersOthersOthers
29%29%29%29%
BBBB
6%6%6%6%AAAA
10%10%10%10%
HCSHCSHCSHCS
55%55%55%55%
8. Macro EconomyMacro EconomyMacro EconomyMacro Economy
GDP Growth Rate & Unemployment Rate
2010 2011 2012 2013 1Q14 2014(e)
GDP Growth Rate 6.1% 3.6% 2.0% 2.8% 3.9% 4.0%
Source: Bank of Korea
* Seasonal adjustment rate
Unemployment Rate 3.7% 3.4% 3.2% 3.1% 3.5%* 3.2%
Macro & Car sales: Direct Macro & Delinquency: Inverse
20%
30%8%
GDP growth rate (left)
New car sales growth rate (right)
3%8%
GDP growth rate (left)
HCS Delinquency ratio (right)
8
-10%
0%
10%
20%
0%
4%
'06 '07 '08 '09 '10 '11 '12 '13
1%
2%
0%
4%
'06 '07 '08 '09 '10 '11 '12 '13
9. Domestic Auto Market and HMG’s PositionDomestic Auto Market and HMG’s PositionDomestic Auto Market and HMG’s PositionDomestic Auto Market and HMG’s Position
HMC KMC Others Imported HMG M/S
(Unit: ‘000s)
Saturated Auto Sales Market, Yet Dominant Market Position of HMG
413 485 493 482
313
322 267
279
321 297
261 285
41
53
62
61
91 105
131 156
1,205
1,273 1,216
1,455
1,556 1,580 1,542 1,540
71% 71% 73%
77%
74% 75% 75%
71% 73% 70%
9
Source: KAMA
581 625 571
703 660 684 668 640
271
272 316
413 485 493 482 458
'06 '07 '08 '09 '10 '11 '12 '13
154 161
109 108
61 6935 44
359 382
1Q13 1Q14
10. Key Features of Korean Consumer Finance MarketKey Features of Korean Consumer Finance MarketKey Features of Korean Consumer Finance MarketKey Features of Korean Consumer Finance Market
Conservative Auto Finance Structure Strong Credit Infrastructure
• Finance transactions centrally collected
(Banks, Credit card, Non-bank FIs, Insurance)
• Extensive information for sequential analysis
70%
30%
New car
purchase price
Residual value
of used car
Down payment
Rigorous Regulation
• Exclusive organizations within FSS:
capital market supervisory and investigation
• Extensive information for sequential analysis
(default and good credit)
• i.e. customer profile(job, income, etc),
Accounts(loans, credit transaction and limits,
etc), history (payment, card usage), delinquency
(amount, payment schedule, etc)
10
70%
50%
Origination Year-3
capital market supervisory and investigation
• Quarterly management of capital adequacy,
leverage, loan ratio, LTV, NPL and etc.
• Frequent supervision on information security
and customer satisfaction/protection
• Regular (every 3 year) and irregular (when
necessary) business assessment
11. Asset PortfolioAsset PortfolioAsset PortfolioAsset Portfolio
Others
Receivables Breakdown by Product
• Financial Receivables : KRW 20.3Tn
New Car
51.5%
Auto
Used Car
7.4%
P. Loan
10.1%
Mortgage
8.8%
Others
2.5%
(Approx. USD 19.0 Bn)
• Auto-centric asset composition
• Key features by product
Product Key Features
New Car
Captive business
Auto Lease
11
Auto
Lease
19.7%
Auto Lease
Used Car 100% pledge
P.Loan Driven by X-selling
Mortgage Risk hedged by Insurance
12. Revenue and ProfitRevenue and ProfitRevenue and ProfitRevenue and Profit
2012 2013 1Q 13 1Q 14 YoY
Operating Revenues 3,542 3,222 921 789 -14.3%
(unit: KRW Bn)
• Decrease in operating revenues
– Up-front fee revocation for New cars
– Personal loan Telemarketing banned
(excl. FX effect) 3,071 2,921 722 683 -5.4%
Operating Expenses 2,947 2,787 802 711 -11.3%
(excl. FX effect) 2,477 2,487 603 606 0.4%
Interest expenses 895 801 204 195 -4.5%
Bad Debt expenses 377 453 101 119 17.9%
Operating Income 595 435 119 77 -34.8%
– Personal loan Telemarketing banned
for 1 month (industry wide)
• Expense maintained at similar level
– Declined interest expenses from lower
funding rate offset by increase in bad
debt expenses
• One time non-operating income
12
Non-operating Income -5 89 89 -22 -124.7%
Net Income 437 391 153 31 -79.7%
ROA 2.2% 1.9% 3.0% 0.6% -2.4%
ROE 14.8% 12.1% 19.7% 3.7% -16.0%
– 1Q 13: Gain from disposal of HQ office
buildings (KRW 85 Bn)
– 1Q 14: Recorded appraisal loss for HK
Savings Bank (KRW 28 Bn)
– Profitability excl. appraisal loss
: ROA 1.15%, ROE 7.13%
13. Stable Asset Quality and ReserveStable Asset Quality and ReserveStable Asset Quality and ReserveStable Asset Quality and Reserve
Excl. Purchased NPL Incl. purchased NPL
30+ Delinquency Ratio Maintained Low Well Maintained Reserve (unit: KRW Bn)
Reserve Allowance for bad debt
30+ Delinquency Coverage
1.6%
2.0%
2.3% 2.4% 2.6%
2.5%
2.7% 2.8%
• Denominator effect from asset decrease 265
280
326 326
474
610
665
763 779
158%
151%
145%
154% 150%
30+ Delinquency Coverage
13
'10 '11 '12 '13 1Q14
• Denominator effect from asset decrease
- 1 mo. halt on p.loan TM, now normalized
• Increase in imported lease DQ and asset decrease
- Operation withdrew since February
345 385
437 453
265
'10 '11 '12 '13 1Q14
14. Characteristics of HCS Risk ManagementCharacteristics of HCS Risk ManagementCharacteristics of HCS Risk ManagementCharacteristics of HCS Risk Management
• Major decision regarding Risk • Systematic response to Business Cycle
Multi-layered Risk Management Framework
Governance
Strategy
Infrastructure
Major decision regarding Risk
• Controlling Risk limits
• System
• Analytic models
Systematic response to Business Cycle
• Profit & Risk Optimization
• Support new business growth
• Monitor major Risk Indexes
• Risk Model & Score Validation
i.e.
– Risk Control Committee
– New Product Introduce
– Credit Review Point
i.e.
– Risk Based Pricing
– Residual Value Insurance
– Collection Channel Optimization
14
Monitoring
Infrastructure• Analytic models
• Information
• Risk Model & Score Validation
• Operation Risk Minimize
i.e.
– Maturity Expected Loss
– Economic Capital
– Anti-Fraud System
– Collection scoring system
i.e.
– Portfolio Quality Review
– Risk Appetite Monitoring
– Stress Test
– Contingency Plan
15. Diversified Funding by Type, Duration & RegionDiversified Funding by Type, Duration & RegionDiversified Funding by Type, Duration & RegionDiversified Funding by Type, Duration & Region
Funding Portfolio by Product
64.3%
KRW
Funding Portfolio by Currency
Domestic
Bond
49.8%Foreign
Bond
28.3%
CP
1.4%
Loans
8.1%
ABS
12.4%
1.4%
3.3%
3.6%
4.6%
22.8%
MYR
AUD
JPY
CHF
USD
15
• Total balance : KRW 18.1Tn
• Product mix guidelines : ABS 20%, CP 10%
• ALM ratio :143%
• % of Long-term debt : 73.3%
• Major Overseas Funding in 1Q 2014
– 144A/RegS Bond: USD 500Mn, 3y FRN
16. Sound Capital Structure StrengthenedSound Capital Structure StrengthenedSound Capital Structure StrengthenedSound Capital Structure Strengthened
Improved Capital Profile (Unit: KRW Bn) Capital Adequacy Ratio / Leverage
2,261
2,658
3,031
3,235 3,274
13.7% 13.0%
14.5% 15.1% 15.5%
Regulation: Over 7%
Regulation: Under 8X (Since 2012)
16
'10 '11 '12 '13 1Q 14
9.3 x
8.3 x
7.2 x 6.6 x 7.0 x
'10 '11 '12 '13 1Q 14
* Separate financial sheet
17. Liquidity Profile (unit: KRW Bn)
Strong Liquidity Position and Contingency PlansStrong Liquidity Position and Contingency PlansStrong Liquidity Position and Contingency PlansStrong Liquidity Position and Contingency Plans
Contingency Framework
Crisis
Detection
• Daily monitoring of key market
indicators (Early Warning System)
Credit-lineCash Short-term Debt Coverage Ratio*
Stress Test
Liquidity
Management
Decision
Body
Normal
• FC (Funding Committee)
• ALCO (Asset Liability Committee)
• EFC (Executive Finance Committee)
• Short term 1M
2,511
2,480 2,345
2,3502,365
3,808
3,580 3,649
4,102
39.1%
63.5% 69.2% 73.7%
84.8%
17
* Short-term Debt Coverage Ratio
= (Cash + Unused committed credit line)/ Short-term debt balance
Volatile
Actions • Contingency funding
• Asset slow down (Sales)
• Crisis communication
• Contingency monitoring
• Long term 12M
1,027 1,297 1,100 1,304
1,752
1,338
'10 '11 '12 '13 1Q14
18. Credit RatingsCredit RatingsCredit RatingsCredit Ratings
HCS’ Global Credit Ratings Credit Rating Rationale
•Strong Standalone Profile
–Strong market position as HMC's
Agency Rating Features
–Strong market position as HMC's
captive finance arm
–Sustainable track record of strong
profit performance and robust credit
fundamentals
–Adequate liquidity and sound
capitalization
•Capable & Willing Shareholder Support
S&P BBB+ (P)
Equalized with HMCMoody’s Baa1 (S)
Fitch BBB+ (S)
18
•Capable & Willing Shareholder Support
-Strong performance of HMC
-Willingness of support from the
shareholders proven in history
JCR A+ (S)
Equalized with
sovereign rating
RAM AAA The highest rating
19. InvestmentInvestmentInvestmentInvestment HighlightsHighlightsHighlightsHighlights
• Value Proposition of HCS
– Captive company of HMG in Korea and leader of global business
– Dominant market position based on the successful JV structure between HMC and GECC
• Key Financials of 1Q 2014
– Financial Receivables : KRW 20.3 Tn
– Operating Income : KRW 77.5 Bn
– Dominant market position based on the successful JV structure between HMC and GECC
– Stable and solid fundamental proven in history
– Unparalleled corporate culture driving ceaseless change
19
– Operating Income : KRW 77.5 Bn
– 30+ Delinquency Ratio : 2.8% (Excl. Purchased NPL, 2.6%)
– Leverage : 7.0X
– Credit Ratings : S&P BBB+ (P) / Moody’s Baa1 (S) / Fitch BBB+ (S)
