By David Shaw, ERJ editor
Seoul, Korea -Â Hankook Tire is on a mission to raise its brand value. The company is cash-rich, strongly cash-generative, has low debt and claims to lead the world in efficient production. The senior management is sending a firm message that the company believes it has tyre design and manufacturing technology to match anything in Europe or Japan, but they feel unable to sell tyres for a price that reflects the value of the product to the consumer.
Despite being a small company in comparison with the big three -Â Michelin, Bridgestone and Goodyear -Â or even compared with the next band of tyre makers, including Conti and Pirelli -Â Hankook has ambitious plans. According to Hyun Bum Cho, member of the owning family and chief strategy and financial officer, "our vision is to globalise the corporation in the future. We are trying to be a global tyre maker rather than a regional, niche one. "
He added that Hankook aims to be among the top five global tyre makers, with sales of $10 000 million or more, production of 150 million units/year and a global market share of 10 percent or more within, "a decade or two."
Cho recognises that nothing in the tyre industry happens fast, and repeated consistently that there is no easy, single method to deliver these ambitions. The only way to get to the top in the tyre industry, he said, is long-term, diligent application to the needs of the customers, combined with efficient production, economies of scale and minimising the financial risk to the company and its shareholders.
Around 40 percent of the shares in Hankook are owned by the Cho family. Historically there were links between the Hankook group and the Hyosung group, but these have now been severed and there are no formal ownership links. Other shares are held by pension funds and other institutional investors.
Two family members are on the board: Hyun Bum Cho , mentioned above and his older brother, Hyun Shick Cho, chief marketing officer. These two nominally report to the global chief executive, Seung Hwa Suh, a long-time employee of both Hankook and Hyosung.
Hyun Bum Cho, chief financial officer said the company has relatively low debt, and strong cashflow "next year, our cashflow will exceed that of Pirelli this year". This means it could quickly and easily raise, "several billion dollars" on the international money markets if cash were needed to fund merger and acquisition activity over the mid-term.
Asked about M & A activity, the CSFO, Cho said, "We do not have a specific budget. But if you look at the history, you can see consolidation in the US and European markets up to 1990s. We view the current market development as the world's second industrialisation, across China, Russia and India and it will last 3 - 4 decades. The Indian economy has a long way to go; the same in China. There has to be another wave of consolidation and creation worldwide. When the time comes for this new consolidation period, we will be one of the players. It is not that we are going to buy Pirelli or Conti, but we will be ready and we will play in M&A. Specifically in 3 - 4 years our EBITDA will be around $1000 million without much debt. Currently we are one of the most unleveraged tyre makers in the world."
This healthy financial position aside, Hankook is fortunate in at least two aspects. First, it is the market leader in replacement passenger car tyres in China. The company presented figures showing it leads the market with 25 percent share. Second-placed Michelin trails with 14.7 percent, while Goodyear has 13.7 percent and Bridgestone has 11.3 percent. Hankook also claims a market share approaching 45 percent of the Korean market, and wants to increase this to above 50 percent, matching the position of Michelin in the French market.
Together, these two markets generate over 40 percent of Hankook's sales. On the production front, Hankook has five plants around the world, including the new factory in Hungary that has only just come on stream. Two of the others are in China and the two largest are in Korea. These two Korean units have combined capacity for around 41 million units/year, which represents 60 percent of the company's total output. Most of this is in car and light truck tyres, placing the company about 8th -Â and climbing - in the world's tyre-making league tables.
Hankook's manufacturing output is dominated by car and light truck tyres. According to Suh, the chief executive, the company feels that in terms of technology and product design, Hankook's tyres are as good as anything on the world market. In truck tyres, however, Hankook still has some way to go, both in terms of product quality and casing longevity and in terms of distribution and service, said Suh.
He said the company is working hard on both these issues so that, when Hankook's brand is accepted among car tyre customers, it can quickly enter the global truck tyre market. Suh emphasised that even though these two product families are at different stages of commercial development, it does not change the fact that Hankook regards both as high priority within the company. Cho, chief strategy officer said, "In the longer run, we will have a viable strategy for [truck] service networks in Europe, America and Asia."
Currently, the company does not make two-wheeler tyres nor aircraft tyres, and has no plans to enter those markets. In off-road, the company makes a few tyres for export to West Europe, but these do not play any part in the company's mid-term strategic development, said Suh.
This is a brief preview of a longer article profiling the Korean company that will appear in the next issue of European Rubber Journal