New orders

New orders

Riding the waves

of change


2010 Annual Report


Company Overview 03 / Key Figures 04 / CEO Message 06 / 2010 at a Glance 08

Operation Review 10 / Financial Review 24 / Corporate History 84 / Global Network 85



For Daewoo Shipbuilding & Marine

Engineering Co. Ltd., 2010 was truly a

remarkable year — one of the strongest and

most memorable in our company’s history.

Not only did we achieve impressive

financial results and eclipse one of our most

challenging years with one of our best,

but we also worked together to enhance

our value and solidify our position in the

international markets.

The collective strength of our experienced

leadership, premier assets, efficient

operating structure and flexible financial

position underlies a resilient, stable

operation that allows us to effectively

maneuver and prosper, enriching all of our



Company Overview 03 / Key Figures 04 / CEO Message 06 / 2010 at a Glance 08

Operation Review 10 / Financial Review 24 / Corporate History 84 / Global Network 85

Company Overview

Daewoo Shipbuilding & Marine Engineering Co. Ltd. (hereafter

DSME) began operation in 1973 at the Okpo Shipyard in Geoje

Island, South Gyeongsang Province. As a global leader in the

building of ships and offshore structures, our product portfolio

includes a wide range of commercial ships such as LNG carriers,

LPG carriers, bulk carriers, oil tankers, containerships and pure car

carriers; offshore structures such as fixed platforms, drilling rigs,

semi-submersible drilling rigs, FPSO, and drillships; as well as naval

vessels and passenger ships including submarines, destroyers,

rescue ships and patrol boats.

DSME actively pursues eco-friendly management activities

through our commitment in 1995 to establish green shipyards

and in our operation of the world’s largest dry dock, with a

capacity of one million tons on an area spanning 4.3 million

square meters. We have optimal facilities ranging from block

manufacturing plants to PE sites, dry docks and inner walls.

Moreover, equipped with our IT-based shipbuilding technologies,

offshore structure building capabilities, large-scale plant project

management capabilities, and advanced technologies for building

submarines and destroyers, DSME produces a wide variety of

ships and offshore structures of outstanding quality.

In 2010 when we announced our decision to focus on ethical

management – a qualitative leap that will allow DSME to become

the world’s No.1 heavy industries group – our revenues amounted

to KRW 12.075 trillion and our operating income reached KRW

1.011 trillion. As a result, we rejoined the ‘10-1 trillion club’ – a term

for firms that achieve more than 10 trillion won in revenue and 1

trillion won in operating profit on a yearly basis. At the same time,

we engaged in a number of innovative activities to reduce costs

by approximately KRW 600 billion, enabling us to improve our

management structure in all areas.

With regards to our yard facilities, we are currently working

on the Neutae Breakwater Reclamation Project and have

constructed additional inner walls in anticipation of future

increases in orders in our offshore business. Construction is

also underway for the in-house PE zone, the Heavy Zone in

the G2 area and on inner walls. Our investment in new growth

engines in different fields include the equity acquisition of the

Paenal Yard in Angola, development of the DeWind model,

and equity acquisition of mining areas in Cepu, Indonesia.

Production-wise, we successfully constructed our first

exclusively developed model of the DSME 10000 Drillship in

2010, and are within three years of full-scale construction. We

have also delivered Asia’s largest semi-submersible drilling

rigs, providing owners with greater economies of scale, thus

allowing us to increase the number of orders we received in

offshore structures. We successfully built and delivered the

ROKS Yulgok Yi Yi, the Korean navy’s second Aegis Destroyer,

equipped with the Aegis combat system and the most up-todate

anti-ship, aircraft and submarine capacities.

In the technology sector, we have focused on securing

value-added core technologies. We co-developed a green

ship propulsion system in collaboration with MAN Diesel,

exclusively developed the world’s largest stand-alone LNG

storage tank, developed the shipping industry’s first ship

maintenance management software (CMMS) and developed a

large gradual roll molding and bending machine for large ship

plates. We won the bronze medal in the Korean Technology

Awards for our 14000 TEU containership, and our exclusive

technology for LNGCs was selected as one of Korea’s top 100

technologies. In addition, nine of our vessels (containerships,

VLCCs, LNGCs, LNG-RVs, etc.) were recognized as the world’s

best by globally renowned marine publications including

Naval Architect, Maritime Reporter, Marine Log and Fair Play.

In our efforts to ensure future growth engines, we have also

created business models targeting North America and China

to develop our wind turbine business into one of the world’s

top three by 2010. Additionally, we are actively working

to secure production bases in major hubs in Korea, China

and North America, and have also secured the basic design

capacity to advance into the clean coal power plant business.

DSME has paved the way to become the world’s No.1 heavy

industries group with annual revenue projections of KRW

40 trillion by 2020, receiving orders for ships and offshore

plants through local contacts and establishing joint ventures

with Zvezda (Russia), equity investments in the Paenal Yard

(Angola), etc.

Despite the sluggish recovery in the shipbuilding industry,

the volume of orders received in 2010 topped USD 10 billion

due to product portfolio diversification: the world’s largest

platform plant installation vessels from Allseas Group SA

in Switzerland; luxury ferries from Tunisian state-owned

company CoTuNav; FPSOs from France‘s Total; and Type-214

submarines from the Korean navy.

While we expect to witness a shrinkage in logistical volume

resulting from the lower production rates worldwide and

delays in the recovery of ship prices this year, we are also

projecting potential growth in the offshore plant business.

Against this backdrop, we plan to achieve revenues of

over KRW 10 trillion, and an operating income of over

KRW 1 trillion through such key strategies as maintaining

competitiveness in our key products such as ships and

offshore structures; sustainably improving our management

fundamentals to obtain higher efficiency in our operations;

securing growth engines such as wind power and modular

plants, optimizing our business, production and workforce

globally; and contributing to society. Our target order volume

is set at USD 11 billion, up USD 650 million on the previous

year due to an expansion in orders received for FPSOs and





Major Operating Performance

(KRW Billion)

2010 2009 2008

Sales 12,074.5 12,442.5 11,074.6

Operating Income 1,011.1 684.5 1,031.6

Net Income before Income Taxes 1,024.3 768.1 579.7

Net Income 780.1 577.5 401.7


(KRW Billion)

Net Income

(KRW Billion)

Total Assets

(KRW Trillion)






















As an environmentally responsible heavy industries

group, we will work toward ensuring future growth and

profitability in partnership with our shareholders. I hope

you will join us as we create a better future.


Last year represented a breakthrough in our efforts to overcome the

global economic crisis that began in 2008, as we made a qualitative

leap forward. DSME has successfully pursued its goal of becoming one

of the world’s top heavy industries groups thanks to your unyielding

dedication and loyalty as shareholders.

Although the global economy has begun to recover, turmoil in the

European economy still threatens to impede future economic growth.

However, with all our employees and executives joining forces and

working together over the past year, we have successfully received

orders for ships and offshore plants worth over USD 10 billion,

maintaining our world’s No.1 position for two years running. The

volume of orders DSME received in 2010 made it the most successful

year since the onset of the economic downturn in 2008.

We have achieved significant advances in revenue and operating

income with revenue amounting to KRW 12.075 trillion and an

operating income of KRW 1.011 trillion. Through these figures, DSME

has rejoined the ‘10-1 trillion club’ – a term for firms that achieve more

than 10 trillion won in revenue and 1 trillion won in operating profit

on a yearly basis – for the second time since 2008. It is never easy for a

non-conglomerate to achieve such a goal. All of this is attributable to

your unsparing support and devotion, and I sincerely pledge that we

will dedicate all of our efforts to fulfill your continuing expectations.

This year will be another challenging year. Despite the surging volume

in shipping orders and the global economy recovery, we cannot

be complacent. China, in particular, out performs Korea in terms of

order volume and the industry’s strong government support, despite

being technologically behind Korea. As a result, competition among

shipbuilders will certainly intensify over the short- to mid-term.

Regardless, DSME is committed to transforming any threats into

opportunities and further develop by regrouping and outlining new

goals to achieve. We will maintain our current status as a member of

the ‘10-1 trillion club’ and strive to receive orders worth over USD 11

billion. This will spur us further to achieve projected revenues of KRW

40 trillion by 2020 as we become a heavy industries company capable

of providing total solutions to our customers.

We have three key management principles in place to achieve our

goals: securing the No.1 position in terms competitiveness in the

shipbuilding and offshore industries; securing future growth engines;

and maintaining a sense of ownership.

First of all, the shipbuilding and marine engineering industry faces

fierce competition with the benefits of the economic turnaround yet

to arrive. However, for us, this industry is analogous to seed money

for our sustainable growth. We will maintain our leading presence

in the market by securing a technological advantage for the next

generation of products, and ensuring cost competitiveness through

efficient operations. Moreover, we will strive to generate profits while

acquiring new orders in partnership with the countries we tapped

into over the past year.

We will strengthen our position to secure future growth engines

such as modular-based onshore plants and power facilities utilizing

CO2 capture technologies, while securing cost competitiveness and

expanding our market share in the wind power business. To this end,

we will do the utmost to globally optimize our business, production

and workforce.

Lastly, we will imbue our workforce with a sense of ownership. We

will act with the mindset of ‘owners’ wherever we may be in order to

practice our two management principles set out above. Our business

environment is rapidly changing, requiring us to advance into new

fields, and our sense of ownership will be a weapon that ensures

our workforce successfully adapts to these changing conditions.

We are dedicated to seeking creative solutions to any problems we

encounter as we actively work to provide our customers with the best

desired results, and we hope we can count on your continued trust

and support as we makes this journey together.

Through these endeavors, DSME will achieve its goals regardless of

the challenges or circumstances confronting it, and will continue to

be the world’s No.1 integrated heavy industries group so that we may

share the fruits of our harvest with you.

While there are many changes ahead, including changes in corporate

governance, we will do our utmost to reward your support and

encouragement. By embodying the ideal that each and every worker

is an owner of DSME, we will continue to strive toward achieving our

goal of becoming the world’s No.1 integrated heavy industry group.

We will ensure your satisfaction as shareholders, enable all our

employees and executives to find value in their work, and grow into

a top-ranked enterprise that benefits society through its continuing

social contributions. Once again, thank you for your encouragement

and support, and I wish you and your family good health and



Nam, Sang-tae

President & CEO of DSME



at a Glance


1. Develops a strategic partnership

with Russia

DSME’s President & CEO Mr. Sang-Tae Nam met

with Russian Prime Minister Vladimir Putin in

Vladivostok to develop a strategic partnership.

During the meeting, Prime Minister Putin pledged

to make the new USC-DSME joint venture a

top government priority. The shipyard, to be

constructed in the Russian city of Bolshoi Kamen

in Primorsky Krai, will focus on various large-sized

commercial vessels as well as offshore & onshore

projects needed in Shtokman, Yamal and the

Sakhalin Oil & Gas Fields.

2. Wins an order for five SUEZMAX

crude oil carriers from Angolabased


DSME signed a USD 350 million order for five

SUEZMAX crude oil carriers with Angola based,

Sonangol. DSME is scheduled to deliver the

vessels from the middle of 2011 to early 2013.

DSME and Sonagol have maintained a close

relationship since their first offshore plant contract

was signed in 1995. This order marks the pinnacle

of a fifteen-year relationship built on mutual trust

and respect.

3. Partners with MAN Diesel to

develop environmental-friendly


MAN Diesel, the world’s leading providers of diesel

engines for marine and power plant applications,

signed an agreement with DSME develop a high

pressure gas ship propulsion system. If applied to

a 14000 TEU container vessel, this system could

reduce annual operating costs by around USD 12

million, based on current gas and oil prices. The

two companies will develop an environmentally

friendly system to supply high-pressure gas for

MAN Diesel’s ME-GI engine.

1 2 4 5 6

4. Signs MOU with Nova Scotian

government on wind power

DSME reached an agreement with the provincial

authorities regarding the creation of a joint

business venture to produce a wind turbine

plant in the Canadian province of Nova Scotia,

with a capital investment of 40 million Canadian

dollars. DSME also signed a Memorandum of

Understanding (MOU) with Nova Scotia Power

Inc. (NSPI), the power generation and delivery

company in Nova Scotia that will provide it with a

wind turbine component manufacturing plant.


5. Wins an order for a new

submersible drilling rig from KNOC

DSME won an order for a new submersible drilling

rig from a consortium led by the state-run Korea

National Oil Corporation. The vessel will be built

using a barge-type design and will be used for oil

exploration in the Zhambyl oil field in Kazakhstan.

This order was especially significant as it is a

tangible achievement complimenting DSME’s

overseas energy development plans, and will lead

to additional orders for the production facilities

and plants required in the Zhambyl Oil Field.

6. DSME CEO Wins Top CEO Award

On May 4th, DSME’s President & CEO Mr. Sang-

Tae Nam received the 42nd Korean Top CEO

Award for his contribution to the development

of Korean shipbuilding industry. The award, run

by the Korea Management Association (KMA),

gives recognition to executives who have made

significant contributions to their companies. The

award is one of the country’s top management

prizes and holds great prestige.

7. Establishs joint venture with


DSME signed an agreement with Russian United

Shipbuilding Corporation (USC) to build a joint

shipyard in Zvezda, near Vlasvosto, Moscow.

The joint venture is an extension of an earlier

agreement the two companies signed in 2009 to

modernize the Zvezda Shipyard.

8. Wins USD one billion worth of

new orders in June

DSME received shipbuilding orders worth USD

one billion in June. DSME signed a contract with

a client from South Asia to build three VLOCs

(Very Large Ore Carrier) valued at USD 350 million.

Scheduled for delivery by the beginning of 2013,

the vessels will measure 362 meters in length and

65 meters in width. With a payload capacity of

400,000 tons of ore, the loading and unloading

of cargo at port will be much easier due to an

innovative new ballast system.


9. Signs contract with Heerema

Marine Contractors to build a pipelaying


On July 16th, DSME signed a contract with

Heerema Marine Contractors to build a pipelaying

vessel. Scheduled for delivery by the end of

2012, the vessel will measure 215 meters in length

and 46 meters in width, and will be able to achieve

speeds of up to 14 knots. The vessel, which will

be fitted with 4,000 ton crane and pipe reels, is

able to lay pipes at an ocean depth of more than

3,000 meters. With the DPS (dynamic positioning

system) and the abandonment & recovery winch

system, the pipe-laying vessel can carry out

operations regardless of the environment.


10. Receives an order from

COTUNAV to build a luxury ferry

On July 26th, DSME received an order from

CoTuNav (Compagnie Tunisienne de Navigation),

a Tunisian state-run shipping company, to

build a luxury ferry. This contract is valued at

approximately 310 billion won, with DSME

scheduled to make delivery by the beginning of


11. Emerges as a player in the South

African shipping industry

DSME entered into the South African shipping

market. Mr. Sang-Tae Nam, CEO & President of

DSME, met with South African President Jacob

Zuma to discuss economic cooperation in the

shipping business, and agreed to strengthen

their mutual cooperation. At the meeting,

President Jacob Zuma asked DSME to share its

wealth of experience in various industries such as

shipbuilding, construction, energy and shipping

to promote the economic development of South


12. Successfully signs contracts to

build an FPSO from Total

On August 23rd, DSME successfully signed a

contract to build an FPSO (floating, production,

storage and offloading) unit worth USD $1.81

billion with Total, a leading European oil company.

The FPSO, named CLOV FPSO, will operate in

waters off the west coast of Angola and was

named after the oil fields where it will operate.

It will also have a storage capacity of close to

180,000 barrels of crude oil. It is noteworthy

that DSME received this major project due to

its competitiveness, experience, and executive


10 11 12 13 16


13. Wins a new order to build the

Korean Navy’s Type-214 submarine

DSME received an order from the South Korean

navy to construct its sixth Type-214 submarine.

The 1800-ton submarine, which can perform

anti-ship and submarine warfare and blockade

enemy bases, is expected to be a core aspect

of the Korean Navy’s military strength. DSME is

scheduled to deliver the Type-214 submarine by


14. DSME’s joint venture company

in Russia wins its first contract

Zvezda-DSME, a joint venture between DSME and

Russia’s USC (United Shipbuilding Corporation),

successfully won its first shipbuilding contract.

On October 20th, Zvezda-DSME signed a contract

to build 12 crude and refined oil carriers with

Sovcomflot, a Russian state-owned shipping

company. Signed in the Kremlin, the contract

is worth approximately USD 800 million. The

contract is especially meaningful as it is the first

successful result of DSME’s localization strategy

for the Russian shipbuilding market.

15. Acquires stake in Angola-based

PAENAL shipyard

DSME entered the African shipbuilding market by

acquiring a 30 percent stake in Angola’s Paenal

Shipyard in a deal signed with Sonangol Holdings

and SBM Offshore. Paenal Shipyard is located

near the city of Porto Amboim, 300 km south of

Luanda. The joint venture between Sonangol,

an Angolan state-owned oil company, and SBM

Offshore, a Netherlands-based marine technology

company, was established in August 2008. DSME

plans to participate directly in the management

of the Paenal Shipyard by providing expertise on

the operation and management of shipyards and

offering consulting services on the construction

techniques of marine structures.

16. Wins orders for a Drillship and

Semi-submersible drilling rig

On December 8th, DSME successfully signed

a contract to build a drillship and a semisubmersible

drilling rig worth USD 1.08 billion

with an America-based offshore drilling company.

The two vessels will be constructed at the DSME

shipyard in Okpo, Geoje Island. The drillship is

scheduled to be delivered by March of 2013 and

the drilling rig by August of 2013. Measuring

243 meters in length and 42 meters in width, the

vessel will be a standard DSME drillship.

17. Joins the 10 Trillion Won Sales

and 1 Trillion Won Operating

Income Club


DSME posted record-high annual sales of around

12 trillion won in sales and approximately 1

trillion won in operating income in 2010, up 47.7

percent from the previous year. DSME was able to

post such high earnings as we concentrated on

building high value-added products such as LNG

ships, ultra large container ships, and drillships.




With record shipbuilding contracts,

2010 was one of our most successful

years to date with 63 commercial ship


New orders :63



of Sales

KRW 7,272 billion

USD 4.59 billion

44% of

New orders


Ship Business

Offshore Business

New Growth Engines

Research & Development


DSME boasts world leading technology and competitiveness

in commercial shipbuilding ranging from LNG carriers, LNG-

RVs and supertankers to ultra-large containerships, cape-size

bulk carriers, LPG carriers, and pure car carriers.

Despite a slowdown in shipbuilding orders due to the

ongoing global economic downturn, DSME received 63

commercial ship orders in 2010.

While all projections were for a rapid drop in orders for

traditional major ships like bulk carriers and containerships

as a result of the economic slowdown in the international

markets, we acquired orders for 12 ultra-large containerships

in the latter half of 2010 and now lead the new containership

market. Our sales diversification strategies enabled us to

focus on highly-functional specialized ships, and we were

able to dominate the market by receiving orders for five

open hatch-type bulk carriers and one passenger ship.

We also received orders for eight very large crude carriers

(VLCCs) and five Suez tankers. This success can be attributed

to cost competitiveness achieved through our consistent

cost reduction efforts, product competitiveness through

our continuous facility investment, and our technology

development and intensive focuses on sales capacity.

Recognizing growing demand for green ships, we have

successfully developed a variety of green and energy-saving

technologies and now dominate this vital growing market.

Setting ourselves apart from our competitors, we have

actively developed and applied efficient and innovative new

green technologies to our vessels, such as pre-swirl stators

and LNG-fueled ships, thereby protecting the environment

while simultaneously guaranteeing financial benefits for our


Thanks to our dedication and effort, nine of our ships

delivered in 2010 received top scores and were ranked

among the world’s best by such renowned industry

publications as Naval Architect, Maritime Reporter, Marine

Log, and Fair Play. Furthermore, our technological prowess

and superior quality has been recognized the world over

with our ships receiving recognition for excellence for over

20 years.

Our naval vessel business includes destroyers, submarines

and patrol boats for the navy and maritime police of

various countries, as well as on-going maintenance. In the

special shipbuilding category, where we build and maintain

submarines and special private ships, we successfully built

the world’s most advanced 10,000-ton Aegis destroyer,

delivering it to the Korean navy in August 2010. We also built


and delivered eight medium-size maritime police patrol

boats, and began construction on a Type-214 submarine after

obtaining the relevant technologies and materials.

We also executed maintenance work for a Type-209

submarine delivered to the Korean navy, and performed

maintenance on an Indonesian navy submarine. We are

currently working on the basic design for a submarine that

meets local needs, and have completed the basic design

for a surface ship which is now moving onto the detailed

design and construction phase. We have also received orders

for training ships and auxiliary ships from Malaysia, and

have taken the No.1 position in Korea in terms of defense





2010 was one of our best years for

offshore business with orders in a range

of areas from semi-submersible drilling

rigs to the largest platform plant

installation vessels built to date.

New orders :10



of Sales

KRW 4,679 billion

49% of

New orders

USD 5.09 billion


Ship Business

Offshore Business

New Growth Engines

Research & Development


In 2010, DSME acquired orders for 10 offshore projects,

including five for world-renowned oil companies such

as ExxonMobil, Total and Chevron, paving the way for

sustainable growth in its offshore business. The value of

DSME’s contract with Total for FPSO vessels exceeds KRW

2.14 trillion and will be carried out as a turn-key project, with

construction based on our exclusive technologies and the

experience gained from successfully completing other largescale


We also secured an order for the world’s largest platform

plant installation vessels from Allseas Group SA in

Switzerland. Measuring 382 meters in length, 117 meters in

width and 29 meters in height, they will be twice the size of

the largest existing platform installation vessels. Furthermore,

weighing 120,000 tons, they will be three times heavier than

existing VLCCs. With the demand for the disbanding of old

offshore structures expected to surge, we expect even more

opportunities in this field.

In the drillship field, we received an order for one drillship and

one semi-submersible drilling rig from a drilling company in

the U.S., where we have maintained competitive dominance,

acquiring orders for a total of nine semi-submersible drilling

rigs for the same model since 2005.

In 2010, the last in a five-ship order from Transocean was

delivered. With delivery beginning in 2006, we were able to

successfully deliver five drillships of the highest quality on

schedule, reflecting our excellence in the area of drillship


Our growth in the offshore business has been steady, and we

expect 2011 to be another flourishing year with new energy

development projects occurring across the world due to

ongoing rises in crude oil prices.



New Growth


DSME is actively exploring and

developing new environmentally

sustainable technologies including

energy and plant to drive new

growth for decades to come.


Wind power is one of the fastest-growing markets in the

energy sector. Today, after more than twenty years of

technological and organizational growth, wind energy is

breaking new ground. Numerous new players are appearing

in the international markets with the aim of promoting the

economic and ecological conversion of the energy industry

in their own countries. Expertise in wind energy technology

is in great demand internationally. Performance, experience,

reliability and innovative power are the main criteria being

brought to bear in the wind energy sector in the 21st century.

DSME’s acquisition of wind-turbine developer, DeWind Inc.

was a pivotal move for its advance into the wind energy

market. DeWind focuses on the design, R&D, marketing, and

servicing of wind turbines while components are procured

from third party suppliers. The establishment of DSME

Trenton, a manufacturer of wind energy equipment has

allowed DSME to expand its portfolio in a logical manner to

include a further important area of technological growth.

DSME will provide DSME Trenton with major raw materials

leveraging its strong bargaining power and utilizing its global

supplier network. DSME Trenton is a subsidiary company to

design & manufacture wind towers and blades. The products

will be sold through DeWind’s support in basic design,

outsourcing, operational back-up, etc. In addition, DeWind is

currently developing the larger megawatts on offshore wind



Ship Business

Offshore Business

New Growth Engines

Research & Development




Based on our proven offshore integrated technologies, DSME

offers proper business solution near shore. DSME is taking the

leading in developing cutting–edge new building experience

closely related to the barge-mounted modular plant. More

specifically, we constructed BMPP (barge- mounted power

plant) as oil fired power plant at Khanom, Thailand as well as

barge mounted seawater treating plant at Alaska’s Prudhoe

Bay. Furthermore, DSME completed construction of the

Pazflor FPSO (floating production, storage and offloading) for

Total, the world’s largest offshore oil production facility, which

will be installed off of the shores of Angola by the second half

of 2011. Designing and building the equipment required to

develop Pazflor required DSME to marshal the know-how of

hundreds of people at dozens of industrial sites worldwide.

Having the necessary experience in conducting plant

business, DSME is able to provide various modularized

options; At-Shore Barge-mounted Modular Power Plant in

Harbor Area, Floating Barge-mounted Modular Power Plant,

and Onshore Skid-mounted (Truss-based) Modular Power

Plant. Compared to Conventional models, Barge Mounted

Power Plant have definite advantages: high efficiency and

productivity, ability to maintain the original integrity of the

components during transport and the shortest possible

delivery period. By using Barge-Mounted Modular plant

process, we expect to achieve cost reduction, especially in

indirect cost, temporary buildings/facilities cost, field labor

cost and field subcontracting cost. DSME is also looking

forward to developing green energy field such as Coal-

Fired Power Plant with CCS (Carbon Capture Storage). A

CO2 capture plant integrated with a power plant using

commercially-proven components such as carbon dioxide

absorption that use harmless inorganic chemicals, in a

capture technology widely employed in the petrochemical



World’s No.1 Integrated

• Obtain leading positions in businessdomains

(Shipbuilding/Offshore/Plant/New renewable energy)

Heavy Industries Group • Establish a self-continuous cycle of sustainable growth

( )

Vision 2020

World’s No.1


Heavy Industries



Entering the Top Tier


Preparing for Take-off

• No.1 in shipbuilding & offshore business

• Enter the top-tier in energy plant industry

• Balance business portfolio with growthand relevance

• Build a foundation for reshaping

• Launch new business and products (Modular plants,F-LNG,

Wind Power,etc.)

• More creative culture



Research &


Our commitment to research and

innovation has allowed us to create

a variety of new innovative green

technologies to ensure a better future.

Expenditures in R&D

(KRW Billion)







DSME operates research centers staffed with more

than 350 top-notch engineers devoted to fostering

new growth engines, developing products and

technologies, improving the performance of key

products, and enhancing productivity. The Future

Product Business Development Institute works

to develop products that are expected to create

new markets in the future, and conducts studies

on environment-friendly, human-focused business

areas and intelligent robotics. The Ship & Ocean

R&D Institute works to develop the fundamental

technologies and design governing fluid dynamics,

structures, vibration and noise, as well as ship

and plant automation. The Industrial Application

R&D Institute researches welding methods, weld

deformations, measurement technologies and

coating and anti-corrosion for ships and offshore

structures, as well as the early stabilization of new



Ship Business

Offshore Business

New Growth Engines

Research & Development


In 2010, the Ship & Ocean R&D Institute developed:

environmentally friendly LNG-fueled ships for market

promotion; a standard model and component technology

for the DSME LNG FPSO, a storage system for DSME LNG; the

ducted PASS, a DSME fuel reduction device; a machine that

reduces the formations of air pockets; a VOC-reducing green

shipping system; and technology for evaluating CCS intensity,

while also domestically producing bulk handling system

and DP simulation technology. In the basic design area, the

Institute developed the 55K open hatch bulk carrier, the

DSME NEO Panamax a new RORO vessel, a standard model

for the WTI Vessel DSME, the 53,800GT cruise ship, and the

DSME Suezmax – a twin skeg shuttle tanker.

The Industrial Application R&D Institute conducted research

and development in the following areas to increase

productivity and the competitiveness of major products

while reducing any risk or waste factors: development

of plate coating automation devices; development of

flammable gas measuring devices for spraying; research on

the expanded application of pile welding devices on a fixed

horizontal position; research on high-competency welding

techniques for the overlapping joints of plate block butts;

improvement of large-scale roll devices used to process

curved plates for ships; development of measuring devices

to arrange shafts and pipes; technological developments

for optimal construction of stripe coats and their practical

application; and development of a coating to prevent the

corrosion of decorative goods for the LNGC Weather Deck

SUS and their application to ships.

The Future Product Business Development Institute is

responsible for research into future growth drivers. Its

main task is to support the company’s business objective

by developing products and solidifying the foundation for

modular plant products, discovering new and renewable

energy initiatives, creating offshore and ship products,

and developing intelligent robotic systems. The institute

is coming up with diverse forms of new products and

technologies and component technologies, as well as

identifying and pursuing new businesses. The Institute has

developed technologies in preparation for entering the

wind power generation business; process analysis models

for PFBC power plants that employ CO2 capture and storage

technology; new independent storage tank technology;


navigation and control technologies for unmanned offshoreexploration

submarines; and blade and offshore platform

concept design technologies for offshore wind power

generation systems.

Along with ongoing research into design technologies

to maximize productivity, quality and efficiency in our

core products, DSME is directing its focus toward project

engineering and basic technologies to build high valueadded

offshore structures.

We are taking the lead in developing cutting-edge new

products such as LNG-fueled ships, LNG FPSOs, LNG FSRUs,

arctic ships (B/Cs, tankers), arctic drillships, and cruise ships

that will serve as future growth engines. We are also pursuing

new business oriented toward the environment and people

to lead the second phase of our F1 ongoing development

strategy and drive future growth. These drivers include new

energy facilities, equipment related to the environment and

climate, and innovative plants.



DSME is committed to protecting its

most important resource – its workforce.

Through our comprehensive

health and safety programs, we ensure

the wellbeing of all our employees.

GHG Emissions

(Unit: CO 2 Ton/Year)







Recognizing the importance of health, safety and

the environment (HSE), DSME’s top priority is to

practice ‘HSE First Management’ as it strives to grow

into the world’s leading integrated heavy industries


DSME conducts consolidated HSE management

through its safety and occupational health

management (OHSAS 18001) and environmental

management (ISO 14001) systems. In addition,

DSME acquired KOSHA 18001 (Safety & Health

Management System) certificates in 2010.

Implementation of our integrated HSE system is

evaluated through a quarterly monitoring system

and internal and external audits – the results of

which are reported to the CEO and analyzed for

areas of improvement.


Ship Business

Offshore Business

New Growth Engines

Research & Development



DSME conducts general, special and comprehensive

healthcare for all its employees and manages a

comprehensive health and safety management system.

We actively carry out preemptive health management

for employees and executives to ensure their wellbeing

and good health. In particular, we target high-incident

and prominent diseases such as cardiovascular conditions

for early discovery and prevention. Since 2009, DSME has

implemented health check-ups for all employees and their

spouses, helping employees manage their family’s healthcare

needs. DSME assists its employees’ health management by

promoting healthy lifestyles and habits through anti-smoking

and fat reduction programs. These and other endeavors

earned DSME an award from the Minister of Health and

Welfare in 2007 for its anti-smoking campaign in the

workplace. In addition, DSME’s workforce and management

conducted a blood donation campaign in 2009, receiving an

achievement award on World Blood Donor Day.


DSME conducts multifaceted and systematic programs

to provide the safest workplace possible and regards

safety as a top priority in corporate management. DSME

operates an HSE management performance system for each

division, which manages the system of safety checks, safety

education, prevention of accidents, implementation of the

HSE management program, and the ergonomics program.

By indexing each item in real time, DSME has strengthened

its programs to prevent accidents and quantify daily safety

management. Moreover, the HSE system has worked to boost

morale and prevent accidents through a safety mileage

system that award divisions and individuals that excel in safe


DSME operates a three-stage safety education program for

all new employees, with effective training also provided

through experience-based programs at the HSE experience

zone, and practical safety education for division-specific



Since declaring its intention to become the industry’s

first ‘green shipbuilder’, DSME has conducted strong

environmental management to become a global green

company and exert strong green management.


DSME operates an enterprise-wide campaign aimed to

reduce waste by 20% in order to respond to global warming

and reduce its carbon footprint, and to fulfill its climate

change commitments. Since signing a voluntary agreement

to lower volatile organic compounds (VOCs), the level of

VOC usage has dropped by 29.7% compared to 2006. DSME

voluntarily prepares for environmental regulations at home

and abroad by forming related task forces and organizations,

and has established a greenhouse gas inventory.

In 2010, DSME reduced wastes through water recycling and

the recycling of waste paints and resources, saving KRW 1,958


DSME spent KRW 13.56billion in four environmental

categories including pollution prevention, pollution

treatment, environmental risk management and social

environment in 2010. DSME also dedicated a total of KRW

6.97billion toward the promotion of environmentally friendly

programs such as waste reduction and recycling.


Board of


The BOD is primarily responsible for protecting the interests of

shareholders and ensuring the overall soundness of the company’s

management. To effectively carry out its role, the BOD operates within

a governance framework that assures its complete independence and



Lee, Young Man

DSME, Senior Executive

Vice President & General Manager of Shipyard

Song, hee Joon

Nam, Sang Tae

DSME, President & CEO

Professor of Public Administration at

Ewha Womans University

Kim, Young il

The Former Secretary General of

Global Korean Forum

Kim, Ji hong

Kim, You hun

DSME, Senior Executive

Vice President & CFO

Professor of KDI School of

Public Policy & Management






Leading the way forward toward a better

tomorrow, DSME is actively working

to develop and refine cost-efficient,

environmentally-friendly technologies.

Though innovation and a meaningful

commitment to environmentally sustainable

development, we have become market leaders

in a range of green-technologies.

our active commitment to green innovation

has led DSME to create better, more efficient

products that meet all of our clients’ future

needs, while at the same time helping

preserve our environment for the next

generation. We will not only deliver a better

future for our shareholders and workforce, but

for our children and grandchildren to come.

Financial Review

Management’s Discussion & Analysis 26 / Independent Auditor’s Report 29

Non-Consolidated Financial Statements 30 / Notes to Non-Consolidated Financial Statements 37






n e t i n c o m e

( K R w B i l l i o n )






Discussion & Analysis

1. Overview

2010 was another successful year for Daewoo Shipbuilding & Marine Engineering Co., Ltd.(DSME) in which we delivered an

excellent profit result in challenging trading conditions. DSME posted sales of KRW 12,074,505 million in 2010, down 3% (KRW

368,014 million) year on year. However, our operating income reached KRW 1,011,077 million, with an income before tax of KRW

1,024,332 million and a net income of KRW 780,132 million. As such, we saw record levels profitability and financial stability.

DSME’s record 2010 profit result was driven by strong performances from strengthening our leading position in the global

shipbuilding & offshore products.

We achieved a profit rate of 8.4% despite declining volumes and other challenges including the downturn in global logistical

volumes and the higher costs of imported raw materials amid the ongoing global financial crisis. Leading the shipbuilding

industry with outstanding performance in commercial ships, offshore products, DSME now stands out as a top performance

among the many competitors in the renewable energy field as well.

2. Performance Results

Summary of Income Statements

(KRW Billion)

2010 2009 2008

Sales 12,074.5 12,442.5 11,074.6

Gross Profit 1,397.0 978.7 1,324.8

Operating Income 1,011.1 684.5 1,031.6

Income before Taxes 1,024.3 768.1 579.7

Net Income 780.1 577.5 401.7


Sales for 2010 reached over KRW 12 trillion, with operating income reaching over KRW 1 trillion. This shows a year-on-year increase

of 47.7% for operating income, 33.4% for income before taxes, and 35.1% for net income. DSME re-joined rejoined the ‘10-1

trillion club’ with over KRW 10 trillion in revenue and KRW 1 trillion in operating profit for the first time since 2008, reflecting the

outstanding enhancements made to DSME’s corporate scale and profitability. Only 24 companies joined the ‘10-1 trillion club’

this year, and DSME’s inclusion can be attributed to our employees’ unsparing effort and devotion to cutting costs and increasing

productivity, despite the numerous difficulties facing us – such as the downturn in the shipbuilding market and other negative

externalities resulting from the financial crisis.

The number of orders settled in 2010 amounted to KRW 11,489,066 million – a sharp increase of 174% from the previous year. This

strong increase in order volume was driven by a greater focus on our key competencies in shipbuilding and specialized vessels,

and we expect this trend to remain in the years to come. In the shipbuilding business, sales focused on high-function, specialized

vessels in line with our business diversification strategies. As such, DSME has paved the way to achieve stable future revenue by

retaining a differentiated market position from our Chinese counterparts that mostly focuses on conventional bulk carriers and

tankers. Our experiences and technical know-how accumulated through many successfully implemented large-scale projects

have been recognized worldwide in terms of plant orders in the offshore sector. We are now planning to establish the groundwork

to move into high value-added products, while also initiating new businesses based on our diversified portfolio and strong

technological prowess.


Management’s Discussion & Analysis

Independent Auditor’s Report

Non-Consolidated Financial Statements

Notes to Non-Consolidated Financial Statements


DSME showed strong improvements in our profitability, with gross profit rising from 7.87% in 2009 to 11.57% in 2010. This growth

can be attributed to the aforementioned diversification in our product line, the production of value-added products through

continued R&D activities and cost reduction on the production sites. This growth in profit is even more impressive considering the

skyrocketing costs of raw material such as steel products in 2010, which resulted in many companies suffering from lower than

projected profit margins.

Our operating income reached KRW 1,011,076 million, an increase of 47.7% from the previous year. As a result, DSME was able to

once again rejoin the ‘10-1 trillion club.’ In addition, depreciation and other expenses were set due to the possibility of a recovery

in SG&A expenses and manufacturing costs. Severance benefits and development costs also increased as we moved to improve

employee welfare. These achievements reflect DSME’s unprecedented qualitative growth and contribute to our employees’

wellbeing. Furthermore, DSME’s goal of enhancing Korea’s national competitiveness was steadily implemented, with our higher

profitability maximizing shareholder value.

For non-operating income, income gained from derivatives held to hedge volatile risks such as fluctuations in exchange and

interest rates reached KRW 28,366 million, showing that DSME can achieve stable growth despite the changes in the external

environment. Net income, in particular, reached a record-high of KRW 780,131 million. This excess in revenue will pave the way for

DSME to become a global leader in the field as it will be reinvested back into various growth ventures and research activities to

maximize value for the future.

Status of Orders

The growth rate for new orders in shipbuilding increased by 157%, while offshore business achieved a growth rate of 239%. This

dramatic growth is partially a result of the significant decline in sales orders in 2009, with sales in 2010 reaching numbers similar to

2008, marking a significant turnaround since the global economic crisis.

In the shipbuilding sector, 12 new orders came in for large-scale containerships – a high value-added product. In the offshore

business, we signed order contracts with several different countries, and are projected to witness further increases in orders for

such value-added products in 2011. At a time when the competition to secure natural resources is getting fiercer, we expect the

business volume in offshore plants to increase. As such, our seasoned experience and superior technical know-how will enable us

to secure the edge when competing with global players.

Status of Orders

Order Backlog

New Orders













(Ships) (USD Billion)


2008 2009 2010 2008










34.9 33.84





3. Financial Structure

Assets & Liabilities

DSME’s total assets amounted to KRW 14,176,729 million, down KRW 959,629 million (6.4%) from the

2009 level of KRW 15,136,358 million. This has been mostly driven by a KRW 534.3 billion reduction

in raw materials and by increases in loan loss provisions worth KRW 845.5 billion. Excluding these

factors, a similar pattern with the previous year can be found. Liabilities, meanwhile, amounted to KRW

10,133,496 million, down KRW 1,745,283 million (14.69%) from 2009’s figure of KRW 11,878,779. This

can be attributed to a reduction in liabilities recognized in conjunction with a year on year increase of

KRW 1,614,859 million in derivatives revenue.

Shareholders’ Equity

Shareholders’ equity amounted to KRW 4,043,234 million, up KRW 785,655 million compared to 2009’s

figure of KRW 3,257,579 million, and was mostly driven by increases in net income. This improved

profitability is reflected in DSME’s improved debt-to-equity ratio of 250.63%, down 364.65% from the

previous year. Overall, DSME’s financial stability has strengthened dramatically.

Summary of Statements of Financial Position

(KRW Billion)

4. Future Outlook

2010 2009 2008

Current Assets 7,297.4 9,020.0 9,382.4

Property, Plant and Equipment 4,054.0 4,008.5 2,638.5

Other Assets 2,825.3 2,107.9 3,932.7

Total Assets 14,176.7 15,136.4 15,953.6

Advances from Customers 4,272.6 4,909.4 5,702.9

Other Current Liabilities 3,851.9 4,483.5 4,163.8

Other Liabilities 2,009.0 2,485.9 4,019.0

Total Liabilities 10,133.5 11,878.8 13,885.7

Total Shareholders’ Equity 4,043.2 3,257.6 2,067.9

Global economic growth in 2011 is projected to maintain the downward trend of the past two

years as inflation continues to drive up the price of raw materials. The challenges ahead for DSME

will become even more severe due such externalities as the challenge from Chinese shipyards and

Singapore shipyards. However, despite these challenges, we will continue to bolster R&D to maintain

competitiveness for our major key products. We aim to continue obtaining revenues of over KRW 10

trillion and operating income of KRW 1 trillion by improving our management fundamentals through

business efficiency such as securing additional growth engines, optimizing the workforce, and

enhancing our contribution to social causes and charities. We will also strive to reach an order volume

of over USD 11 billion by bolstering our efforts to receive new orders. In particular, given that the

offshore business is under the global spotlight amid high oil prices, our order volume is projected to


Asset Soundness







Current Ratio

Debt-to-equity Ratio (Borrowings / Equity)




96.0 95.1



2009 2010



Management’s Discussion & Analysis

Independent Auditor’s Report

Non-Consolidated Financial Statements

Notes to Non-Consolidated Financial Statements

Independent Accountants’ Review Report

English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of

Daewoo Shipbuilding & Marine Engineering Co., Ltd.

We have audited the accompanying non-consolidated statement of financial position of Daewoo Shipbuilding & Marine

Engineering Co., Ltd. (the “Company”) as of December 31, 2010, and the related statements of income, appropriation of retained

earnings, changes in shareholders’ equity and cash flows for the year ended December 31, 2010, all expressed in Korean Won.

These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these

financial statements based on our audit. The nonconsolidated statements for the year ended December 31, 2009 were audited by

KPMG Samjong Accounting Corp. whose report, dated February 5, 2010, expressed an unqualified opinion.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards

require that we plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free

of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in

the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by

management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable

basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the

Company as of December 31, 2010, and the results of its operations, changes in its retained earnings and its shareholders’ equity

and its cash flows for the year then ended in conformity with accounting principles generally accepted in the Republic of Korea.

Accounting principles and auditing standards and their application in practice vary among countries. The accompanying financial

statements are not intended to present the financial position, results of operations, changes in shareholders’ equity and cash

flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In

addition, the procedures and practices utilized in the Republic of Korea to audit such financial statements may differ from those

generally accepted and applied in other countries. Accordingly, this report and the accompanying financial statements are for use

by those knowledgeable about Korean accounting procedures and auditing standards and their application in practice.

Notice to Readers

March 7, 2011

This report is effective as of March 7, 2011, the auditors’ report date. Certain subsequent events or circumstances may have occurred

between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the

accompanying financial statements and may result in modifications to the auditors’ report.



Management’s Discussion & Analysis

Independent Auditor’s Report

Non-Consolidated Financial Statements

Notes to Non-Consolidated Financial Statements

Notes to Non-Consolidated

Financial Statement

For the year ended December 31, 2010 and 2009


Daewoo Shipbuilding & Marine Engineering Co., Ltd. (the “Company”) was established on October 1, 2000 as a spin-off of Daewoo

Heavy Industry Co., Ltd.. The Company’s major business is the building and sale of various ships, including special purpose ships and

construction of plants. The Company’s shares have been listed on the Korea Exchange since February 2, 2001, and its global depositary

receipts (GDR) have been listed on the Luxembourg Stock Exchange since June 10, 2003. As of December 31, 2010, the Company’s major

stockholders consist of the Korea Development Bank (“KDB”) (31.26%) and Korea Asset Management Corporation (“KAMCO”) (19.11%).


Basis of Financial Statement Presentation

The Company maintains its official accounting records in Korean Won and prepares financial statements in the Korean language (Hangul)

in conformity with financial accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied

by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform

with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those

who are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed,

restructured and translated into English (with certain expanded descriptions) from the Korean language financial statements. Certain

information included in the Korean language financial statements, but not required for a fair presentation of the Company’s financial

position, results of operations, changes in shareholders’ equity or cash flows, is not presented in the accompanying financial statements.

The financial statements included herein, to be submitted to the annual meeting of shareholders, were approved by the board of

directors on February 28, 2011.

Implementation of the Statements of Korean Accounting Standards (“SKAS”)

The Company prepares its financial statements in accordance with the Statements of Korean Accounting Standards (SKAS). Among

the SKAS that have been amended or newly enacted during 2010, there are no standards that have effects on the preparation of the

Company’s financial statements. The Company applies the same, in all material respect, accounting policies that have been adopted in

the previous year’s financial statements.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and in banks and short-term financial instruments with original maturities of less than

ninety days, which can be converted into cash and whose risk of value fluctuation arising from changes of interest rates is not material.

Revenue Recognition

Revenues from construction contracts are recognized using the percentage-of-completion method, measured by the units of

work performed. Revenues from other sales are recognized upon delivery of goods. Under the percentage-of-completion

method, revenues are recognized based on the percentage of costs incurred over total estimated costs for each contract. The

expenditures incurred before the construction contract is entered into are recognized as prepaid construction costs, if they are

directly related to making a contract, separately identifiable and reliably measurable, and the possibility of construction contract

is probable. The prepaid construction costs are transferred to construction cost at the commencement of the construction.

When the Company expects loss from construction contract, the loss is immediately recognized as provision for construction

losses and charged to cost of sales or cost of construction in the same period. In addition, if the Company has an obligation for



Notes to Non-Consolidated

Financial Statement

For the year ended December 31, 2010 and 2009

construction warranty after the construction is completed, the estimated construction warranty expense is included in cost of

construction when the construction is completed, and recorded as provision for construction warranty.

Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts based on management’s estimate of collectability of individual accounts and

prior year’s collection experience.


Inventories are stated at cost which is determined by using the moving average method, except for materials-in-transit for which

costs are determined using individual specific identification method. The Company maintains perpetual inventory, which is adjusted

to physical inventory counts performed at year end. When the market value of inventories (net realizable value for finished goods or

merchandise and current replacement cost for raw materials) is less than the carrying value, the carrying value is stated at the lower of

cost or market.

The Company applies the lower of cost by group of inventories and loss on inventory valuation is presented as a deduction

from inventories. Among the loss on inventory valuation, ordinary loss is charged to cost of sales and unusual loss is recognized

in non-operating expenses. Meanwhile, when the circumstances that previously caused inventories to be written down below

cost no longer exist and the new market value of inventories subsequently recovers, the valuation loss is reversed to the extent

of the original valuation loss and the reversal is deducted from cost of sales.

Investments in Securities Other Than Those Accounted for Using the Equity Method

Classification of Securities

At acquisition, the Company classifies securities into one of the three categories; trading, held-to-maturity or available-for-sale. Trading

securities are those that are acquired principally to generate profits from short-term fluctuations in prices. Held-to- maturity securities are

those with fixed or determinable payments and fixed maturity that the Company has the positive intent and ability to hold to maturity.

Available-for-sale securities are those not classified as either held-to-maturity or trading securities. Trading securities are classified as

current assets, whereas available-for-sale and held-to-maturity securities are classified as non-current assets, except for those whose

maturity dates or whose likelihood of being disposed of are within one year from the date of the statements of financial position, which

are classified as current assets.

Valuation of Securities

Securities are recognized initially at cost, which includes the market price of the consideration given to acquire them and

incidental expenses. If the market price of the consideration is not reliably determinable, the market prices of the securities

purchased are used as the basis for measurement. If neither the market prices of the consideration given nor those of the

acquired securities are available, the acquisition cost is measured at the best estimates of its fair value.

Meanwhile, in order to determine cost of securities for the calculation of realized gain or loss on disposal, the Company applies

specific identification method for its debt securities and moving average method for its equity securities.

After initial recognition, trading securities are valued at fair value, with unrealized gains or losses included in current operations.

Held-to-maturity securities are stated at amortized cost. The difference between acquisition cost and face value of held-tomaturity

securities is amortized over the remaining term of the securities by applying the effective interest method and added

to or subtracted from the acquisition costs and interest income of the remaining period. Available-for-sales securities are also


Notes to Non-Consolidated

Financial Statement

For the year ended December 31, 2010 and 2009

If an associate’s beginning balance of retained earnings has been changed because of a material error correction and if the

effect of such change on the financial statements of the investor is immaterial, the resulting change in the Company’s share of

equity interest in the associate is included in the Company’s current earnings in accordance with SKAS for accounting changes

and corrections of errors. If an associate’s beginning balance of retained earnings has been changed because of the investee’s

accounting changes, the resulting change in the Company’s share of equity interest in the associate is reflected in the

Company’s beginning balance of retained earnings in accordance with SKAS for accounting changes and corrections of errors.

At the date of an associate’s dividend declaration, the Company subtracts the amount of dividend receivable directly from the

carrying amount of the investment in the associate. However, in the case of an associate’s stock-dividend declaration, no

accounting treatment is made since there is no change in the net assets of the associate.

2) Investment difference

Investment difference arises on the date of acquisition of an investment in an associate because of factors such as the

associate’s ability to earn future profits in excess of normal profits. Such difference is treated as goodwill and accounted for in

accordance with Korea Accounting Standards on business combinations. When the Company is able to exercise significant

influence through an in-stage acquisition of an associate’s shares, investment difference is calculated as if the shares were

acquired in a lump-sum purchase on the same date significant influence became exercisable. The Company calculates the

investment difference if its share of equity interest in an associate increases as a result of an increase (or decrease) in

contributed capital with (or without) consideration. Such difference is treated as goodwill and accounted for in accordance

with Korea Accounting Standards on business combinations.

3) Accounting for the difference between the fair value and book value of the net assets of the associate

At the date of acquisition of an investment in an associate, among the difference between the fair value and book value

of the identifiable assets and liabilities of an associate, the amount relating to the Company’s share of equity interest in

the associate is amortized or reinstated in accordance with the associate’s methods of accounting for assets and liabilities.

4) Elimination of unrealized gains or losses from intercompany transaction

The Company calculates its proportionate equity-share of the unrealized gains or losses from transactions with investees; and

the amount reflected in the carrying amount of the Company’s investment, as of the statements of financial position end date,

is recognized as unrealized intercompany gain or loss. Unrealized gains are accounted for as a reduction of the carrying amount

of the investment in the associate, while unrealized losses are added to the carrying amount of the investment in the associate.

However, when the investee is a subsidiary of the Company, unrealized gains and losses resulting from sale of assets to the

investee (downstream transactions), are eliminated entirely.

5) Impairment losses

If the amount recoverable from an investment in an associate (hereinafter referred to as the recoverable amount) is less than its

carrying amount, the Company considers recognition of an impairment loss. Pursuant to Korea Accounting Standards for

investments in securities, the Company determines whether there is objective evidence that impairment loss has been

incurred. The recoverable amount is determined as the higher of value in use or expected amount of net cash inflows from

disposal of the investment in the associate. The amount of impairment loss is included in current earnings. If there is any

amount of unamortized investment difference when the investor recognizes impairment loss on an investment in an associate,

the remaining balance of the investment difference is reduced first. If the recoverable amount of an investment in an associate

increases after recognizing an impairment loss, the amount of increase is recognized as current income to the extent of the

impairment loss previously recognized. In such a case, the carrying amount of the investment shall not exceed the carrying

amount that would have been determined, as of the date of the recovery, if no impairment loss were recognized in prior


Management’s Discussion & Analysis

Independent Auditor’s Report

Non-Consolidated Financial Statements

Notes to Non-Consolidated Financial Statements

periods. However, since recovery of impairment loss recognized by reducing the balance of unamortized investment difference

is not permitted, no accounting treatment is made for such recovery.

6) Translation of financial statements of overseas investees

For overseas investees whose financial statements are prepared in foreign currencies, the equity method of accounting is

applied after assets and liabilities are translated in accordance with the accounting treatments for the translation of the

financial statements of overseas’ subsidiaries for consolidated financial statements. The Company’s proportionate share of the

difference between assets net of liabilities and shareholders’ equity after translation into Korean won is accounted for as “increase

(decrease) in equity of associates” included in accumulated other comprehensive income (loss).

Property, Plant and Equipment

Property, plant and equipment are recorded at cost, except for assets revalued in accordance with the Asset Revaluation Law of

Korea and revaluation model of current amended SKAS No5. Routine maintenance and repairs are expensed as incurred.

Expenditures that result in the enhancement of the value or extension of the useful lives of the facilities involved are capitalized

as additions to property, plant and equipment. The interest incurred on borrowings in connection with the acquisition of

property and plant and equipment are charged to current operation.

When the book value of an asset exceeds the recoverable value of the asset due to obsolescence, physical damage or a sharp

decline in market value, and the amount is material, the impairment of assets is recognized and the asset is recognized at

reduced value and the resulting impairment loss is charged to current operations.

If the recoverable amount of the impaired asset exceeds its carrying amount in subsequent reporting period, the amount equal

to the excess is treated as reversal of the impairment loss; however, it cannot exceed the carrying amount that would have

been determined had no impairment loss been recognized.

Depreciation is computed using the declining balance method except for buildings, structures and electric equipment that are

depreciated by using the straight-line method, based on the following estimated economic useful lives.

Buildings and buildings on capital lease

Useful lives (years)

25 ~ 50

Structures 12 ~ 50

Machinery 12

Vessels and aircrafts 15

Others 6

An asset whose use is discontinued and held for disposal or retirement is no longer depreciated and the carrying amount of

the asset upon discontinuance of its use is reclassified to an investment asset, which is tested for impairment at each year. An

asset whose use is discontinued and held for future use is depreciated and the depreciation expense is recorded as a non-

operating expense.

Intangible Assets

Intangible assets are stated at cost, net of amortization computed using the straight-line method over the estimated economic

useful lives (2~10 years) of related assets. Development costs are amortized over the estimated economic useful life from the

usable date of the related productions. Ordinary development and research expenses are charged to current operations. If the

recoverable amount of an intangible asset becomes less than its carrying amount as a result of obsolescence, sharp decline in

market value or other causes of impairment, the carrying amount of an intangible asset is adjusted to its recoverable amount

and the reduced amount is recognized as impairment loss.



Management’s Discussion & Analysis

Independent Auditor’s Report

Non-Consolidated Financial Statements

Notes to Non-Consolidated Financial Statements

firm commitment (hedged item) that is attributable to a particular risk. The gain or loss both on the hedging derivative

instruments and on the hedged item attributable to the hedged risk is reflected in current operations. Cash flow hedge

accounting is applied to a derivative instrument designated as hedging the exposure in expected future cash flows of an asset

or liability or a forecasted transaction that is attributable to a particular risk. The effective portion of gain or loss on a derivative

instrument designated as a cash flow hedge is recorded as an accumulated other comprehensive income (loss) and the

ineffective portion is recorded in current operations. The effective portion of gain or loss recorded as an accumulated other

comprehensive income (loss) is reclassified to current earnings in the same period during which the hedged forecasted

transaction affects earnings. If the hedged transaction results in the acquisition of an asset or the incurrence of a liability, the

gain or loss in accumulated other comprehensive income (loss) is added to or deducted from the asset or the liability.


The Company classifies and accounts for leases as either operating or capital leases, depending on the terms of the lease.

Leases where the Company assumes substantially all the risks and rewards of ownership are classified as capital leases. All other

leases are classified as operating leases.

The assumption of substantially all the risks and rewards of ownership is evidenced when one or more of the criteria listed

below are met:

- Ownership of the leased property will be transferred to the lessee at the end of the lease term

- The lessee has a bargain purchase option, and it is reasonably certain at the inception of the lease that the option will be


- The lease term is equal to 75% or more of the estimated economic useful life of the leased property.

- The present value at the beginning of the lease term of the minimum lease payments equals or exceeds 90% of the fair value

of the leased property.

- In addition, if the leased property is specialized to the extent that only the lessee can use it without any major modification, it

would be considered a capital lease.

Where the Company is a lessee under a capital lease, the present value of future minimum lease payments is capitalized and a

corresponding liability is recognized. Payments made under operating leases are charged to the income statement on a straight-line

basis over the period of the lease.

Income Tax Expense

The Company recognizes deferred income tax assets or liabilities for the temporary differences between the carrying amount

of an asset and liability and tax base. A deferred income tax liability for taxable temporary difference is fully recognized except

to the extent in accordance with related SKAS, while a deferred tax asset for deductible temporary difference is recognized to

the extent that it is almost certain that future taxable profit will be available against which the deductible temporary difference

can be utilized.

Deferred income tax asset (liability) is classified as current or non-current asset (liability) depending on the classification of

related asset (liability) in the balance sheet. Deferred income tax asset (liability), which does not relate to specific asset (liability)

account in the balance sheet such as deferred income tax asset recognized for tax loss carry-forwards, is classified as current or

non-current asset (liability) depending on the expected reversal period. Deferred income tax assets and liabilities in the same tax

jurisdiction and in the same current or noncurrent classification are presented on a net basis.



Independent Accountants’ Review Report

on Internal Accounting Control System (“IACS”)

English Translation of a Report Originally Issued in Korean

To the Representative Director of

Daewoo Shipping & Marine Engineering Co., Ltd.

We have reviewed the accompanying Report on the Management’s Assessment of IACS (the “Management’s

Report”) of Daewoo Shipping & Marine Engineering Co., Ltd. (the “Company”) as of December 31, 2010. The

Management’s Report, and the design and operation of IACS are the responsibility of the Company’s management.

Our responsibility is to review the Management’s Report and issue a review report based on our procedures. The

Company’s management stated in the accompanying Management’s Report that “based on the assessment of the

IACS as of December 31, 2010, the Company’s IACS has been appropriately designed and is operating effectively

as of December 31, 2010, in all material respects, in accordance with the IACS Framework established by the Korea

Listed Companies Association.”

We conducted our review in accordance with the IACS Review Standards established by the Korean Institute of

Certified Public Accountants. Those standards require that we plan and perform a review, objective of which is

to obtain a lower level of assurance than an audit, of the Management’s Report in all material respects. A review

includes obtaining an understanding of a Company’s IACS and making inquiries regarding the Management’s

Report and, when deemed necessary, performing a limited inspection of underlying documents and other limited


The Company’s IACS represents internal accounting policies and a system to manage and operate such policies

to provide reasonable assurance regarding the reliability of financial statements prepared, in accordance with

accounting principles generally accepted in the Republic of Korea, for the purpose of preparing and disclosing

reliable accounting information. Because of its inherent limitations, IACS may not prevent or detect a material

misstatement of the financial statements. Also, projections of any evaluation of effectiveness of IACS to future

periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the

degree of compliance with the policies or procedures may deteriorate.

Based on our review, nothing has come to our attention that causes us to believe that the Management’s Report

referred to above is not fairly stated, in all material respects, in accordance with the IACS Framework established by

the Korea Listed Companies Association.

Our review is based on the Company’s IACS as of December 31, 2010, and we did not review its IACS subsequent to

December 31, 2010. This report has been prepared pursuant to the Acts on External Audit for Stock Companies in

the Republic of Korea and may not be appropriate for other purposes or for other users.

March 7, 2011


Management’s Discussion & Analysis

Independent Auditor’s Report

Non-Consolidated Financial Statements

Notes to Non-Consolidated Financial Statements

Report on the Assessment

of Internal Accounting Control System (“IACS”)

English Translation of a Report Originally Issued in Korean

To the Board of Directors and Audit Committee of

Daewoo Shipping & Marine Engineering Co., Ltd.

I, as the Internal Accounting Control Officer (“IACO”) of Daewoo Shipping & Marine Engineering Co., Ltd. (“the

Company”), assessed the status of the design and operation of the Company’s IACS for the year ended December 31,


The Company’s management including IACO is responsible for designing and operating IACS. I, as the IACO, assessed

whether the IACS has been appropriately designed and is effectively operating to prevent and detect any error or

fraud which may cause any misstatement of the financial statements, for the purpose of preparing and disclosing

reliable financial statements. I, as the IACO, applied the IACS Framework established by the Korea Listed Companies

Association for the assessment of design and operation of the IACS.

Based on the assessment of the IACS, the Company’s IACS has been appropriately designed and is operating

effectively as of December 31, 2010, in all material respects, in accordance with the IACS Framework.

January 24, 2011

Yoo Hoon Kim

Internal Accounting Control Officer

Sang Tae Nam

Chief Executive officer






Legacy Begins

1973 Begins construction of the Okpo


1978 Daewoo Shipbuilding & Heavy

Machinery Co,Ltd (DSHM) takes

ownership the Okpo Shipyard

1981 Holds the Okpo Shipyard

dedication ceremony

1989 Korean government appoints

DSHM an industrial rationalization


1994 DSHM merges into Daewoo Heavy

Industries Ltd.(DHI)

1997 Establishes Daewoo-Mangalia

Heavy Industries Romania

1999 Announces Daewoo

Conglomerate’s restructuring plan

Begins corporate workout program

for DHI


New Developments

2000 DHI’s Shipbuilding and Heavy

Machinery Division becomes

an independent company,spun

off from the former Daewoo


2001 Concludes corporate workout

program,stocks listed on the Korea

Stock Exchange

2002 Changes official corporate title to


2003 Issues Global Depositary Receipts

2005 Establishes DSME Shandong Co.,

Ltd.(DSSC) in Shandong,China



Going Green,

Surging Ahead


2006 Establishes DSME Construction Co

2007 Wins $6 billion Export Tower Award

at the 44th Trade Day Ceremony

Hits a new record number of orders,

surpassing $20 billion

2008 Wins Korea IT Innovation Award

Achieves a safety result of 10 million

man-hours with IIF in the Qatargas


Receives ISO 27001Certification

2009 Wins TOP Export Award

Establishes DeWind Corporation

World’s largest floating dock makes

debuts at the DSME yard

2010 Rejoins the ’KRW 10 trillion

in revenue – KRW 1 trillion in

operating profit club’

Signs an agreement with Russian

United Shipbuilding Corporation

(USC) to build a joint shipyard in


Rio de Janerio




Head Office




Tel: +82-2-2129-0114

Fax: +82-2-756-4390

Ship Yards


1 Aju-dong,Geoje-si,Gyeongnam,Korea

Tel: +82-55-680-2114

Fax: +82-55-681-4030


DMHI 1,Portului Street 905500,


Tel: +40-241-70-6200

Fax: +40-241-75-6060








• DSEC Co.,Ltd.

• Korea Marine Fund Corp.

• Welliv Corp.


• DSME Construction Co.,Ltd.

• Shinhan Machinery Co.,Ltd.

• Samwoo Heavy IND.CO.,LTD.


DSME Shandong Co.,Ltd.




DeWind California




NDS International Enterprise Ltd.

Overseas Offices








Rio de Janeiro












Outstanding Vessels in 2010


Tel:+82-2-2129-0114 / Fax:+82-2-756-4390










173.4 CBM LNGC













Owner:Maran Tanker

Delivery:Jul 19,2010













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