Hankook Maintains Strong Sales Growth & Profit Margins in 2007

Hankook Tire’s claim to be one of the world’s fastest growing tyre manufacturers was given a boost today by the release of its 2007 results. The South Korean company posted global sales of KRW 3.2 trillion (£1.77 billion) in 2007, an 11.8 per cent year-on year increase. Profit margin dropped slightly to 8.1 per cent while consolidated operating profit increased 5.1 per cent to KRW 263.6 billion (£144 million). While this latest profit margin is down 0.6 per cent on that recorded in 2006, Hankook defends the still respectable figure by pointing out that the previous year’s – and the current – margin was the highest amongst all major tyre manufacturers, last year’s outstripping the nearest competitor by two points.

Other milestones of note for the company include European sales – in the fourth quarter these increased by 9 per cent on the previous year – along with year-on year UHP tyre sales across all global markets; these increased 10.5 per cent. Hankook’s CEO believes his company’s efforts to build upon both product and brand quality has been instrumental in all such positive results.

“Our focus on improving global management structures and processes in recent years has maintained our ability to balance increasing global sales with industry-leading profit margins, said Mr. Seung Hwa Suh. “Despite a challenging year for the industry as a whole, our strategy of increasing the quality and reputation of our products has allowed us to build margins without adversely affecting our sales growth in both new and established markets for the Hankook brand.”

The South Korean manufacturer was not immune from industry-wide negative factors. The cost of sales increased by 12.4 per cent in 2007, and raw material costs supplied to Korea production facilities – including the cost of rubber and oil products – increased by 2.5 per cent year-on-year. Costs remained high, with the average quarterly cost of raw materials at US$1,721 per ton.

Yet Hankook remains positive about 2008 growth prospects in spite of cost trends. The company says it is “aggressively” targeting global sales, which in 2009 are targeted to approach KRW3.9 trillion (£2.13 billion), a potential growth of 19.6 per cent. The company’s projected sales figure reflects increasing demand for Hankook’s high-performance tyres, increased capacity through its mid-2007 opened production facility in Hungary and investment in ultra-high performance UHP tyre production at its flagship Geumsan facility in Korea.

Almost a million tyres were produced in Dunaujvaros during the Hungarian plant’s first 6 months of operation, and Hankook expects an additional 4 million to be produced in 2008. Investment at Geumsan will increase production capacity for its profitable output; by the end of 2009, plant capacity for UHP tyres will have increased by 50 per cent, or 5 million units, annually. The company reports that it remains in a strong position to invest further in overseas production facilities, with EBITDA increasing from KRW500 billion (£273 million) to KRW541 billion (£296 million) in 2007, alongside low debt and strong cash flow.

Mr. Suh, discussing Hankook’s investment activities, continued, “The new facility in Europe is increasing our ability to meet the increasing demand for our products and also helping the company spread risk and reduce logistics costs. The final completion of the Hungarian facility will reduce delivery times from over one month to within five days to all locations in Europe.”

Hankook Tire has set a target of 9 per cent profit margins this year, but predicts an increase in cost of sales, driven by ongoing investments and high raw materials costs, of 18.3 per cent in 2008. The company adds it will maintain its long term growth strategy of focusing on four key business drivers: ongoing improvement of management and leadership processes and structures; increased production and distribution capabilities; consistent investment in technological innovation; and building the Hankook Tire brand by leveraging OEM reputation and conducting ‘smart marketing’ activities.