ANNUAL REPORT - Doosan

2003DOOSAN Heavy Industries & ConstructionANNUAL REPORT

01A GLOBAL VISIONIt takes a world of perspective to compete and succeed in the global marketplace. At DoosanHeavy Industries & Construction, our four decades of experience in our namesake fieldshave given us the perspective to know what global customers want and the expertise andtechnology to deliver quality results. And now as a fully privatized firm, we are addinga new perspective that will help us do it more competitively and profitability for ourcustomers and shareholders around the globe.>

02FINANCIAL HIGHLIGHTSIn Millions of Korean Won2003 2002Total AssetsTotal Stockholders’ EquityNet SalesPower PlantsIndustrial PlantsCastings & ForgingsCivil Engineering & ConstructionOperating IncomeNet IncomePer Share Performance (In Korean Won)Net EarningsDividends Declared• All figures are for the fiscal years ended December 313,036,9271,581,9442,067,6731,037,343269,299186,446574,58567,83527,21531812,8293,094,3141,660,1502,771,6301,082,897954,172199,844534,717150,05677,33890412,8292,067,67327,215NET SALESNET INCOME2,771,63077,338In Millions of Korean Won2003In Millions of Korean Won200320022002

CEO’S MESSAGE03Last year we made various efforts to enter new markets and win orders through localmarketing, despite the downward trend of the plant industry both at home and abroad.

04As a result, we were awarded Iran’s Mapna Power Plant project - an enormousundertaking worth over 240 million euros - as well as Jordan’s Rehab CombinedCycle Power Plant project - valued at about 90 million dollars.We were able to secure the largest market share in both HRSG and desalination.We also won large domestic projects such as Taean Power Plant Units 7 & 8 andDangjin Thermal Power Units 7 & 8.Through these contracts, we were able to record 2 trillion 800 billion won in orders,2 trillion 67.7 billion won in sales and 27.2 billion won in net profit. As of at the endof last year, we had a total of more than 6 trillion 300 billion won in orders-on-hand.We expect to increase our sales from this year as a result of such major restructuring,coupled with the implementation of advanced management solutionsincluding a new ERP.Along with these commanding initiatives, and in order to achieve the goal ofbecoming ‘Global No. 1’, we will implement our four core strategies to maximizeoperation efficiency, increase sales &marketing capacity, develop proprietarytechnologies and optimize our business portfolio.

05We plan to meet this year’s goal of 4 trillion 185.9 billion won in orders, 2 trillion 560.6billion won in sales and 162.8 billion won in net profit by participating in post-warrebuilding in Iraq and desalination projects in other parts of the Middle East.In particular, we will establish a basis for our future achievement of 5 trillion 200billion in orders, 4 trillion 600 billion in sales and 10.6% growth in operating profitin the year 2008.We have been building a performance-oriented culture and seeking ways to implementprofit-oriented management activities since our privatization in 2001.We have been focusing on core businesses such as power and desalination plants,while continuing our dedicated efforts to refine management structures particularlyin the area of transition programs.We have focused special attention on the development of proprietary designs andtechnologies, including the AE of power and desalination plants. We will continueto further improve our competitiveness to become global number one in many otherareas, just as we are in the desalination and HRSG markets.Dae-Joong KimPresident & CEO

06A GLOBAL PERSPECTIVEON RESULTS

07OUR JOB ISN’T ABOUT BUILDING STRUCTURES AND EQUIPMENT.IT’S ABOUT BUILDING QUALITY SOLUTIONS.

08Quality Assurance Our 1st underlined management policy thatcustomers are always our masters and quality is our pride, and we seequality improvement as the most important management goal alongsidethe twin objectives of technological capability and cost competitiveness.To achieve the Quality Policy of ‘Total Customer Satisfaction’, we arecontinually improving our Quality Management System and QualityObjectives.In 2003, we acquired a new Quality Management System certificate bymaking the transition to ISO 9001:2000. We have also successfullyprovided the HRSGs for Gibraltar and Palos Combined Cycle PowerPlants in accordance with the European Pressure Equipment Directive(97/23/EC), and completed Unljin Nuclear Power Plant Units 5 & 6 inconformity with the Korea Electric Power Industry Code which has beennewly developed in Korea.Through active internal quality innovation, we recorded 4.46 (Sigma)with a 13% improvement in manufacturing quality indexes, and saw theCOPQ(Cost of Poor Quality) decrease by 10% while total customercomplaints also shrank by 35% compared to last year.Our major quality endeavors of 2003 were as follows:1. Quality Process Innovation throughout the company2. Product Liability prevention through product risk analysis & safetyimprovement planning3. New nondestructive examination technology4. Twelve-time consecutive winner of the gold medal for the mostexcellent quality control5. Executed Quality Innovation Program to meet the customer needs foreach Business Group

In 2004, our Total Quality Innovation activities will consist of 11 themesincluding Global Sourcing Quality Strategy. We will strive towardCustomer Satisfaction through enhanced Quality Management Systemand establishing customized best quality assurance programs for each ofour Business Groups.09R&D R&D is essential for improving and advancing modern technology.Doosan's commitment in research and development activities has been acrucial factor for realizing many technical achievements and will be evenmore vital in the 21st century.In 2003, all of our researchers poured their best efforts into developingadvanced technologies and differentiated, first-class products with avision to build “a competitive research center with an international levelof technology".In particular, the recent development of VMS (Vibration MonitoringSystem) and next-generation USC (Ultra Super Critical) thermal powerplants was a chance for us to upgrade our technical competitiveness.Furthermore, we began to achieve future technologies like superconductinggenerator/motor system, fuel cell, gas turbine, etc.We have concentrated all our resources and capabilities indebottlenecking and design innovation, emphasizing the aspects oftechnology development and product performance/quality improvementwith an aim to build environmentally friendly power plant. We haveregistered a total of 44 patents and published 136 technical papers inKorean and foreign journals.

In 2004 we will continue to stride forward by combining allour capabilities, as we seek to achieve the vision of building atruly customer-oriented research center with aninternational level of competitiveness.10

UMM AL NAR B DESALINATION PLANTULJIN NUCLEAR POWER PLANTDANGJIN THERMAL POWER PLANTFUJAIRAH POWER & DESALINATION PLANT

A GLOBAL PERSPECTIVE ON RELATIONSHIPS>INDUSTRIAL PLANTSOver the past two decades, we have supplied pressure vessels, columns, heatexchangers, and other industrial plant equipment to leading internationalplant contractors like ABB Lummus Global, Bechtel, and Fluor Daniel. Ourongoing focus on quality and continuous innovation has enabled us to expandour capabilities in ways that now empower us to deliver more value toour customers through package and turnkey orders. Our materialhandling facilities are also making a global impression for their performanceat ports worldwide.CONSTRUCTIONStarting out back in the 1980s as a power and industrial plant builder, wediversified in the 1990s with turnkey projects that established us as a versatilecivil engineering and construction company capable of building subways,expressways, high-speed railways, bridges, port facilities, stadiums,and apartment complexes. In addition to construction,we’re also technically advanced in explosive demolition for awide range of steel and concrete structures, a capability weexpect to expand our business opportunities in the years ahead.FOUR DECADES OF EXCELLENCE September 1962June 1980June 1982March 1993September 1993October 2000December 2000March 2001May 2003Founded as Hyundai CorporationCompleted construction ofHANJUNG, a Korean abbreviationfor Korea Heavy Industries& ConstructionCompleted construction ofChangwon plantAcquired ISO 9001 certificationin 24 power and industrialplant equipment categoriesCompleted gas turbinemanufacturing facilityListed on Korea Stock Exchangefollowing initial public offeringCompleted privatization processHANJUNG renamed to DoosanHeavy Industries &ConstructionAnnounced its 'Change Vision'- 'Specialized plant companyseeking ultimate valuesbased on world`s top technologiesand price competitiveness'TURBINES & GENERATORSStarting out back in 1978 with a small 200 MWe steam turbine andgenerator project, we have spent the past quarter-century masteringthe design and manufacture of high-performance equipment fordiesel, thermal, hydro, and nuclear power plants with technology partner-clientslike GE, Atomic Energy of Canada, and Westinghouse. Today, we’re helping keepthe world powered with gas turbines, steam turbines, and generators that deliverfrom 30 MWe to 1,000 MWe as we develop the next generation of equipment thatwill deliver more power more safely, efficiently, and cost-effectively.OUR PORTFOLIOCASTINGS & FORGINGSOur clients depend on us for everything from 500-ton monoblock rotors forpower plant turbines to specialty steels for plastic molds, tools, and dies.Operating 24 hours a day to meet demand, our forge shop produces around10,000 tons of forgings each month, an amount that’s roughly twice as much asour closest competitors. Today, we’re helping the marine engine, mold and die,shipbuilding, steelmaking, and power generation industries achieve new levels ofperformance with quality components and equipment.A GLOBAL PERSPECTIVE FROM THE INSIDEIt takes people with global perspective to meet and exceed globalexpectations. People with a commitment to excellence and qualitythat never give less than 100%. People like our people.

19NUCLEAR POWER PLANTS_20THERMAL POWER PLANTS_28DESALINATION PLANTS_42TURBINES & GENERATORS_36>A GLOBAL PERSPECTIVE ONTOMORROW’S HEAVY INDUSTRIESCONSTRUCTION_58CASTINGS & FORGINGS_50MATERIAL HANDLING EQUIPMENT_54

NUCLEAR POWER PLANTSNuclear is the furture of environmental friendly and economical power generation to the world. Wehave accumulated state of the art technology and top class project management experience throughmore than twenty units in domestic and overseas projects during the past two decades. We, now, areworld's the most competitive solution provider in the field of nuclear power generation.REACTOR VESSEL INTERNALS20FACILITIES Reactor Vessels Steam Generators Pressurizers

21ULJIN NUCLEAR POWER PLANTControl Element Drive MechanismsBalance-of-Plant

26Spent Fuel Storage has been a real hot potato issue.As the storage capacity in power stations for Spent Fuelis going to saturation, a large number of orders for casksare expected in the near future. Doosan is the only companyin Korea that supplied casks for nuclear powerplants, and is now driving to participate in the globalcask business.

SteamGeneratorREACTOR COOLANT SYSTEMThe Korean standard nuclear power plant design is a 1,000 MWe pressurized reactor system that uses two discrete coolant loopsto supply steam to the turbine generator. The primary coolant loop--the reactor coolant system--consists of one reactor vessel,two steam generators, one pressurizer, and four reactor coolant pumps.Pressurizer27Reactor Coolant PumpReactorRESEARCH & DEVELOPMENT The accelerated development of next-generation technologies is a key elementin our strategy to become a world-class total solution provider in the field of nuclear power. Over theyears, we’ve acquired state-of-the-art engineering and manufacturing expertise through real-world projectexperience as well as licensing agreements with industry leaders. But rather than simply operating as anOEM manufacturer, we’ve continued to incrementally improve our technologies and capabilities to enhancethe reliability and safety of the 1,000 MWe Korean Standard Nuclear Plant design. Shin-Kori Units 1 & 2, Shin-Wolsong Units 1 & 2, the most recent units to adopt improved KNSP design will be completed from 2009 to2011. We’ve also been a key partner in the development of Korea’s next-generation 1,400 MWe reference design- Advanced Power Reactor 1400 - slated to enter commercial service by 2010. With basic design work nowcomplete, we’re optimistic that development will be wrapped up in time to be adopted for the Shin-Kori Units3 & 4.

THERMAL POWER PLANTSThermal, combined cycle, and cogeneration power plants are the future of mainstream powergeneration. Over the past two decades, we’ve acquired the technology and real-world expertisein steam cycle plants to deliver innovative designs and equipment that set the standards for cost,lead time, efficiency, reliability, and emissions. And we're dedicated to raising those standardseven higher in the 21st century.TURBINE ROOM28FACILITIESHeat Recovery Steam GeneratorsCirculating Fluidized Bed Boilers

29TAEAN THERMAL POWER PLANT UNITS 1~6Boilers Environmental Systems Balance-of-Plant Coal Handling Equipment Steam Turbines & Generators

30Doosan has advanced technology and abundant experienceaccumulated through years of experience in thermalpower plant construction.We have so far built a total of 20 thermal power plantsincluding the Korean standard 500MW Taean ThermalPower Plant and others in Boryeong, Hadong andDangjin. Based on the unparalleled expertise andcompetitive price, Doosan was awarded all the subsequentprojects after facing fierce competition withother major international companies. Doosan is nowundoubtedly the number one in Korea when it comesto thermal power plants, particularly after havingcompleted the more cost-effective and environmentfriendly800MW Yonghung Thermal Power Plant Units1 through 4.HADONG THERMAL POWER PLANT UNITS 1~ 62003 HIGHLIGHTSFebruary 28Ras Laffan HRSG (125MW x 6 units)shipmentCONTRACT SIGNING OF MAPNA 22CCPP PJT.In July 2003, we won a US$260 millioncontract to build the MAPNA (22 CCPPPJT, 44 Units) combined cycle powerplant for Iran. This project is the singlelargest order the world has even seen.PROJECT CLIENT CONTRACT PERIOD MAIN CHARACTERISTICS4 HRSGs and 2 BOPs forPusan Combined CyclePower Plant Units 1 & 2Korea SouthernPower Co.Oct. 1999 ~ Jul. 2003Supply of HRSG & BOPWater Treatment Facilitiesfor Yonggwang Units 5 & 6Korea Hydro &Nuclear Power Co.Jul. 1999 ~ Feb. 2003Supply, installation, trial run and performancetest of water treatment facilitiesFARS HRSGMAPNA (Iran)Jan. 2000 ~ Nov. 2003350W x 3 units, Horizontal TypeRas Laffan HRSGEnelpower (Qatar)Oct. 2001 ~ Feb. 2003125MW x 6 units, Horizontal TypeChehalis HRSGParsons (USA)Mar. 2001 ~ Dec. 2003520MW x 2 units, Horizontal Type

312003 REVIEW2003 was a good year for Doosan Thermal1,000Power BG, as its sales reached over 1 trillion won900for the first time after winning consecutive contracts800in Korea and large projects in overseas markets.700Thermal Power BG won all the boiler orders for Taean600Units 7 & 8 and Dangjin Units 7 & 8 through interna-500tional bidding, securing its position as the leading400player in the Korean power plant market based on com-300petitive price and technology.REVENUES2003200220010090ORDERSIn overseas markets, Doosan has been developingHRSGs with proprietary technology since 1993, and injust 10 years gained over 29% market share by win-InbillionsofKoreanwonMay 29Rehab CCPP (100MW x 1 unit) orderJuly 4Completion of Pusan Combined CyclePower Plant Phase 1 (Units 1 & 2)(4 HRSGs & BOP)ning orders for a total of 64 units for power plants worldwideincluding the MAPNA (22 CCPP PJTs, 44 units)and Rehab EPC (2 units) projects.Doosan is now the world’s number one supplier ofHRSGs.

322004 PREVIEW Thermal Power BG will focus onensuring cost competitiveness and quality assuranceto win all upcoming contracts for coal-fired boilers inKorea and achieve this year’s goals, targeted at 1 trillion162.4 billion won in orders, 741.2 billion won in salesand 52.7 billion won in operating profit.DONGHEA THERMAL POWER PLANTAs for overseas marketing, Doosan plans to participatein Iraq’s post-war recovery and maintain relationshipswith Siemens, GE, Alstom and other regularclients, while improving business competitiveness viaJuly 9MAPNA CCPP (150MWx44 units)orderSeptember 30Boilers and installation work forTaean Thermal Power Plant Units7 & 8 (500MWx2 units) order20032004KRW1,162bilionPROJECTED 2004 ORDERSKRW741bilionPROJECTED 2004 REVENUES20032004market expansion and local sourcing through businessalliances with experienced companies.In line with international trends for high-temperature,high-pressure and large-capacity boilers, Doosanis currently developing next-generation USC ( Ultrasupercritical)boilers for thermal power plants thatwill be widely used throughout the world.Thanks to its competitive technology and price, Doosanexpects to win some of environmentally friendly CFB(Circulating Fluidized Bed) boiler contracts in the lowemissionscoal plant market, upon developing high-per-

33October 24Boilers and installation work forDangjin Thermal Power Plant Units7 & 8 (500MWx2 units)

34formance components to sharpen its technologicaledge.Doosan is also implementing a detailed action plan instep with its transition program to encompass theareas of cost reduction initiatives, design and technicaldevelopment, risk management and comprehensiveproject management.

Since being awarded the contract to build Boryeong Thermal Power Plant Units 3 & 4 in 1989, Doosan has won more orders to supply total of 32 coal-fired supercritical boilersas well as 8 units of USC (Ultra - Supercritical) boilers. The upgraded 800MWe Yonghung Power Plant Units 1 & 2 (246kg/cm 2 x569°C/569°C) are under commissioning,starting with the commercial operation of unit 1 in May 2004. Doosan has unmatched experience in designing, manufacturing, erecting and commissioning supercritical boilerswith different configurations, fuel types and capacities. Doosan has completed a great number of projects over the last fifteen years, and now boasts of having built someof the best power plants in the world. Based on its advanced technology and abundant experience, Doosan is successfully carrying out the Taean Units 7 & 8 and DangjinUnits 7 & 8 (over 500MWe) projects after facing fierce competition with other major boiler manufacturers in an international bidding. Through a joint venture with universitiesand research centers began in 2002, Doosan has launched a development plan for a next-generation boiler for 1000MW USC power plants.YONGHUNG THERMAL POWER PLANT (800MWe 2)35RESEARCH & DEVELOPMENT Driven by intense competition in combustion technology and increasingly strictinternational environmental regulations, R&D in the thermal power plant industry today is largely focusedon advanced firing systems designed to maximize efficiency and minimize emissions.Our efforts have focused on optimizing combustion efficiency by combining low-NOx burners with in-furnacede_NOx technology (air and fuel staging) to create firing systems that are significantly more cost-effective tobuild, operate, and maintain. In addition to new and retrofit coal-fired power plant installations, our researchhas applications in fossil fuel combustion equipment design. It will also serve as the basis for future developmentprojects involving emissions reduction and other clean coal technologies.Boiler technology for next-generation ultra-supercritical power plants is another area we ’re actively investingin. Backed by technology and expertise acquired through our delivery of over twenty 500 MWe coal-firedsupercritical boilers to date, we ’re now working on boiler designs for future plants that will operate at steamtemperatures exceeding 600 °C to generate upwards of 1,000 MWe. In short, our firing system and ultra-supercriticalboiler R&D projects are helping position us as an emerging player in the fastest-growing segment ofthe power generation industry.

TURBINES & GENERATORSWhether it’s steam created by a nuclear reaction and coal fire, hot gases produced by the combustion of LNG,or kinetic energy unleashed by falling water, energy doesn’t become useful until it’s converted into electricitywith turbines and generators. Over the past two decades, we’ve played a key role in designing and manufacturingthe turbines and generators that bring power to tens of communities around the world. And we’re dedicatedto delivering solutions that will carry out this monumental task even more reliably, productively, and costeffectivelyin the 21st century.TURBINE PRODUCTION LINE36FACILITIESNuclear & Thermal Power Plant Turbines & GeneratorsGas Turbines

37DANGJIN THERMAL POWER PLANTHydro Power Plant Generation Equipment

38Doosan turbines and generators are the most up-todatemachines on the market, utilizing the latest900technology and proving their unbeatable quality.800Presently, we are applying advanced state-of-the700art technology to every aspect of our product line. We600are dedicated to supplying customers not only with500machines, but also total satisfaction.400Our experience in the nuclear power generation300equipment industry dates back to the mid-1980s.Since then, we’ve made inroads into virtually everyarea of turbine and generator manufacturing, buildingmutually profitable relationships with majorclients of global stature. And now we’re offering ourREVENUES2003200220012001009080InbillionsofKoreanwonORDERSclients around the world total solutions to their turbineand generator needs.2003 HIGHLIGHTSFebruary 13Kori Nuclear Power Plant Unit 1Generator Exchange orderTHE TAEAN UNITS 7 & 8 T/G CONTRACT INSEPTEMBER 2003.Doosan is in an advantageous position towin similar projects with the consecutiveorders of two 500MW USC turbines andgenerators for Dangjin Units 5 & 6 in2002.

2003 REVIEW After winning the contract for two 500MWTurbine Generator sets for Dangjin Thermal Power PlantUnits 5&6 in 2002, Doosan secured orders in 2003 forfour more sets for Dangjin Units 7&8 and Taean Units7&8. These consecutive orders prove the company’shigh-end technology and price competitiveness amidstinternational competitive bidding.Owing to the market growth and increasing demandin China, more orders are forecasted thanks to acceleratedinterest and major contracts from GE PowerSystem and Harbin Turbine Company.39June 4China Sourcing 135MW LP CasingsorderPROJECT EQUIPMENT CLIENT COUNTRYDangjin Thermal Power Plant Units 7&8Turbine Generator setsKEWESPOKoreaTaean Thermal Power Plant Units 7&8Turbine Generator setsKOWEPOKoreaGE Sourcing AgreementTurbine Generator setsGE Power SystemsUSAHarbin Turbine CompanyTurbine Generator setsHarbin Turbine CompanyChina

402004 PREVIEW After the downturn in the global powergeneration industry, the World Bank has predicted arather slow recovery in the business and financialspheres; however, this trend is likely to be mitigated bythe developing Asian region as its vitality serves tobolster world economic recovery. These fiscal environmentsare forcing the continued redefinition of thecompetitive landscape, and we are confident that we havethe critical mass of technical, manufacturing and realworld experience necessary to compete with the world'sbest.We’re now well positioned to win orders at home andabroad for new turbine/generator equipment, and areSeptember 30Taean Thermal Power Plant Units7 & 8 Turbine/Generator order20032004KRW 426bilionPROJECTED 2004 ORDERSKRW317bilionPROJECTED 2004 REVENUES20032004prepared to offer unparalleled service in areas likerepair and upgrade projects. We are exerting our bestendeavors to take on new business opportunitiesthrough long-term cooperation with steam turbine/generatormanufacturers in China.From a financial perspective, we expect orders to levelout in 2004 and reach a healthy stasis at just underKRW 426 billion as domestic and overseas orders forsteam turbines, generators, and other equipment beginto recover. At the same time, we expect to pull in revenuesof KRW 317 billion as we continue optimizing ourmanufacturing processes to fulfill the order back-login a timely way.

41October 23Dangjing Thermal Power PlantUnits 7 & 8 Turbine/GeneratororderDecember 26China Sourcing 300MW LP CasingsorderRESEARCH & DEVELOPMENT As with any industrial facility project, limited space and environmental considerationsare becoming increasingly important issues for power plant owners. We currently have two main projectsunderway that are focusing exclusively on the improvement of plant efficiency and capacity. The first is a1,000 MWe ultra-supercritical turbine generator for thermal plants: This design promises to achieve higher efficiencyand reliability, as well as lower operating costs and emissions, than the supercritical 800 MWe design wehave developed for Yonghung Thermal Power Plant Units 1 & 2. The second design is a 1,400 MWe turbin generatorset that will establish the next-generation Korean nuclear plant standard - Advanced Power Reactor 1400and is expected to be adopted for the eight nuclear units scheduled to tender over the remainder of the decade.

DESALINATION PLANTSAs population grow the global demand for potable water continues to expand at a rapid pace.Desalination technology is helping address the challenge of providing the water essential for humansurvival and sustainable development by tapping into the oceans, the repositories of 94% of theearth's water resources. And we're doing our part to make it even more productive and cost-effectivein the 21st century.PRE-SHIPMENT EVAPORATOR TUBE INSPECTION42FACILITIES Evaporators Brine Heaters Generators

TAWEELAH A2 DESALINATION & POWER PLANT, UAE43

44Back in 1999, desalination was a small but growingpart of our business portfolio, supplying just over8% of overall revenues. In less than tow years since,it has become our top business field, providing 28%of revenue totals in 2002. With a number of projectscurrently either underway or fully completed inKuwait, Saudi Arabia and the UAE, we are today theundisputed world leader in desalination plant construction.And with our unique ability to deliver seamlesslyintegrated turnkey water and power solutions,as well as next-generation hybrid desalination systems,we expect to mature into an even more dominantplayer in the Middle East and markets aroundthe world in the years to come.2003 HIGHLIGHTJanuary 2003Initial firing of Gas Turbine forFujairah Water and Power Project(Plant)IDA PRESIDENTIAL AWARDIn March 2002, we won the IDA PresidentialAward as the first company in the worldto apply the hybrid method of plant technology,which we applied at the UAEFujairah Project.PROJECT CAPACITYCLIENT COUNTRYAz-Zour Phase 3 28.8 MIGD MEW KuwaitFujairah 660 MWe + 100 MIGD UOG UAEShoaiba Phase II 530 MWe + 100 MIGD SWCC Saudi ArabiaTaweelah A2 720 MWe + 50 MIGD ADWEA/CMS Energy UAEUmm Al Nar B 62.5 MIGD ADWEA UAE

1,0009008007006005004002003 REVIEW We have proven our uncontested status asa leading company in the world desalination marketby completing Al Taweelah A2, the Middle East'sfirst IWPP project, in 2001, and Az-Zour SouthPhase 3 in Kuwait and Umm Al Nar B Station in theUAE, as well as the Al-Shoaiba Phase 2 project ofSaudi Arabia in 2002.45300200REVENUES2003200220011009080InbillionsofKoreanwonORDERSFebruary 2003Synchronization and first successfulpower supply to the networkof Fujairah Water and PowerProject (Plant)In 2003, the challenge for a successful completionof the 100 MIGD Fujairah project continued. The firstwater was produced in April 2003 and the guaranteedproduction of 100 MIGD was reached in June2003. This success was a result of our excellent engineeringand outstanding quality of manufacturing,which continuously improved through the experienceof previous projects and perfected by theindefatigable efforts of our teams.AERIAL VIEW OF TAWEELAH A2 POWER & DESALINATION PLANT

46The successful completion of theFujairah project will put us on a newlevel in the power and desalinationmarkets.EVAPORATOR FOR FUJAIRAH DESALINATION PLANTAs a result, this project constitutesour foundation for the future, wherehybrid desalination systems and seawaterreverse osmosis technology willeventually come to dominate in theseawater desalination market.20032004KRW1,200bilionPROJECTED 2004 ORDERSKRW340bilionPROJECTED 2004 REVENUES20032004 PREVIEW The continuously growing desalinationmarket is expected to reach a total contract volume of27 trillion won by the year 2010. Such unprecedentedmarket expansion is largely the result of a worldwidewater shortage due to industrialization and climatechange.A major portion of this market will be comprised by anincreasing number of independent water and powerprojects in the countries of the Middle East.2004For 2004, we have set the goal of reaching a contractvolume of 1 trillion 200 billion won.

47April 2003First water produced by FujairahWater and Power Project (Plant)

48In order to achieve our goals for 2004, we intend to maximizethe number of contract orders through an attractivevalue proposition plan and world-class marketing.Our main goal for this year is to ensure price competitivenessover our competitors by positioning salesteams further into Middle Eastern regions and rapidlygrowing markets, while establishing strategic tieswith Saudi Arabia in the area of IWPP, cementing ourvalue proposition and winning turnkey contracts.In terms of business management, we will establishan EPC basis by creating a comprehensive managementsystem and drafting standard procedures.July 2003Reliability Testing started onFujairah Water and Power Project(Plant)We will further improve our MSF technology for thermaland hybrid desalination, while seizing new marketshare through the in-house development of theMED/RO technology. This breakthrough will completeour capability to offer better desalination technologyfor ongoing large-scale projects.The objective is to gain world-class leadership interms of cost dimensions through continued operationalimprovement.We will concentrate on heightening the operation ofDesign To Cost (DTC), Purchasing & Supply Management(PSM) by optimizing design, manufacturing and energyconsumption to achieve the lowest possible waterproduction costs.

493rdStageEjector2ndStageEjectorMP Steam1stStageEjectorSeawaterBrineSteamDistillateNon-Condensible GasTo ATMFrom SeawaterAfterCondenserBrineHeaterTo OutfallLP SteamFrom Stages 1~4From Stage 10PrecondenserMake-Up WaterTo OutfallCondensatePumpDistillateTrayFlashChamberAdjustableOrificeBrine RecirculationPumpDistillate PumpBlow-DownPumpDeaeratorAnti-Scale ChemicalAnti-Foam ChemicalSodium SulphiteMULTI-STAGE FLASH DISTILLATIONWidely used in large-scale desalination facilities, the MSF distillation process begins with the boiling of seawater in a brine heater. Thebrine is then fed through a succession of 15 to 25 ‘flash chambers’ where the air pressure is progressively reduced, causing the brineto ‘flash’ or instantly boil as it enters each new stage. The water vapor released is then condensed and collected for use.RESEARCH & DEVELOPMENT Over the past 20 years, we've worked hard to continuously improve our technologicalcapabilities and we currently stand as the world's leading builder of thermal distillation plants, thanks inpart to our incorporation of the multi-stage flash (MSF) distillation process - the most common desalination technologyfor large-scale facilities. We are now expanding our thermal technology portfolio with the multi-effect (ME)and thermal vapor compression (TVC) distillation technology for large capacity plants. Through the Fujairah project,we also moved into the field of membrane reverse osmosis (RO) technology - the second most common seawaterdesalination technology in terms of installed capacity. Fujairah is currently the world's largest hybrid facility,combining multi-stage flash distillation and reverse osmosis systems. The combination of both technologiespromises to deliver greater operational flexibility in regard to power and water generation, as well as lower watergeneration costs, making it a model for future projects.

CASTINGS & FORGINGSCasting and forging are one of the main components of the heavy industries. Over the past decade,we've earned a reputation for delivering high-performance, high-precision solution for the powerplant and industrial plants like GE Power System, HSD English and POSCO. We're dedicated to helpyou achieve even bigger and better things in the 21st century.REACTOR VESSEL SHELL FORGING10,000-TON PRESS20 50PRODUCTS Stern Frame Castings & Shafts Crankshafts & Connecting Rods

2003 REVIEW While it generated only 9% of total revenuesin 2003, our casting and forging operationplays a key supporting role virtually in all our steelfoundry and forge shops operating 24 hour a day. Interms of industries served, marine engine componentslike crankshaft and connecting rods lead with 27% oftotal, while turbine runner, rotors, and other powerplant equipment stepped in with 22%. Special Steelsfor plastic molds, tools and dies came next with 21%followed by shipbuilding components like rudderhorn and propeller shaft at 12%. Rounding out the list,rolls and mill housings for steel mills provided 11%,and others added the final 7%.512003 HIGHLIGHTSJanuary 31A best record of annual productionfor all of casing, forging, crankshaftand work roll in 2003.Although orders and revenues for this business haveDOOSAN CRANKSHAFTS WERE SELECT-ED AS THE 'KOREAN WORLD-CLASSPRODUCT 2003' BY THE KOREAN GOV-ERNMENTIn 2003, Doosan moved up to the numberthree position in the internationalmarket by producing a total of 140 crankshafts.This year, Doosan plans to produce182 units.enjoyed solid growth in recent years, we have recordedoperating losses since 1998. We set out to rectifythis problem during 2002~2003 with a focus on qualitativegrowth that targeted the most profitable industries.In our home market, we identified the shipbuilding,marine engines, tool and die, and steel plantindustries as strategic fields. In our largest internationalmarket - China - the shortlist consisted of only threecentral elements: shipbuilding, marine engines, andpower generation. Armed with this perspective, we thendetermined an optimal product mix based on oursales and production capabilities and set out on the roadto profitability.Plastic Mold & Tool Steels Runner Crowns, Blades & Bands Rotors & CasingsRoll & Mill Housings

52While it generated only 9% of total revenues in 2003,our casting and forging operation plays a key supportingrole virtually in all our steel foundry and forge shopsoperating 24 hour a day. In terms of industries served,marine engine components like crankshaft and connectingrods lead with 27% of total, while turbine300240230220210runner, rotors, and other power plant equipment200stepped in with 22%. Special Steels for plastic molds,190tools and dies came next with 21% followed by ship-180building components like rudder horn and propellerREVENUES200320022001170160150ORDERSInbillionsofKoreanwonMarch 31Mill housing order for CHFI(China)May 31Hip casing order for Dong FangTurbine works(China)PROJECT EQUIPMENT CLIENT COUNTRYDWRNingbo SteelOngoing OrderOngoing OrderOngoing OrderOngoing OrderWicket GateMill HousingRollCrankshaft & ComponentsRudder HornTurbine Casing, RotorsGE HydroCFHIPOSCOHSDDaewoo ShipbuildingHarbin TurbineUSAChinaKoreaKoreaKoreaChinaPOURING 350 TONS OF CAST STEEL AT FOUNDRY SHOP

2004 PREVIEW With a basic foundation for profitabilitynow in place, our next challenge is to keep building onthat success. In 2004, we’ll continue to expand ourinternational marketing efforts as we move aheadwith a corporate-wide initiative to sharpen our competitiveedge. We’ll be cutting manufacturing coststhrough process improvements as well as pursuingincremental cost reductions across the board. We’ll alsobe reducing lead-time as we trim inventories and finetuneprocesses to cut reworking time and costs. Takentogether, We expect to establish orders of KRW 271.9billion in 2004 as revenue keeps growing, while pushingupwards by 12% to KRW 258.0 billion by manufacturingan optimal product mixture and focusing oncost-saving operations through lean manufacturing.20032004KRW 272bilionPROJECTED 2004 ORDERSKRW 258bilionPROJECTED 2004 REVENUES2003200453September 31Long term contract for roll withPOSCO (Korea)November 30Hip casing order for ShanghaiTurbine Co. (China)TECHNICAL CAPABILITIES It takes state-of-the-art facilities and experience to produce quality castingsand forgings. Our steel foundry is capable of producing 216,000 tons of iron ore and 20,000 tons of steel castingsannually, including individual castings of up to 350 tons. Our forge shop is equipped with a 10,000-tonforging press and vertical heat-treatment furnace that enable us to produce 100,000 tons of steel forgingsannually, including individual forgings of up to 270 tons. Finally, our ISO 9001 quality management system andfull range of ASME certificates covering nuclear fabrication, boiler piping and vessels, and casting and forgingmaterials are backed up by a comprehensive start-to-finish inspection and testing regime to ensure topquality, performance, and client satisfaction.

Industry and trade are the driving forces behind economic growth around the globe. Over the past decade,we've delivered equipment and facilities that have helped container terminals from Mumbai to Malaysiaand Jakarta to Jacksonville achieve high-performance installations. And we're dedicated to raising theperformance standard even higher in the 21st century.MATERIAL HANDLING EQUIPMENTCSU FOR HADONG THERMAL POWER PLANTPOST PANAMAX CRANES FOR MPA, MAURITIOUS54FACILITIESContainer Handling CranesBulk Handling EquipmentIndustrial Cranes

We have installed twin-20 container handling RMQCs fortwo 20 feet containers at one crane motion at JacksonvillePort USA, JICT Port Indonesia and Pusan Port Korea inan endeavor to keep pace with the recent trend of internationaltrade and containerization requiring larger, fasterand more automated equipment for efficient handling ofincreased cargo flow. As for the yard equipment, weexpect to win more orders as we won a contract fromPusan Newport Co. to supply 49 units of RMGCs after afierce competition. It is meaningful milestone to us sincenew equipment demand in container yard by RMGCs isoverwhelming RTGCs demand especially in developed portin terms of automation .Also in bulk material handling equipment area, our technologyand quality are proven through coal handling552003 HIGHLIGHTS March 142 RMQCs and 3 RTGCs(Korea Express Co. Pusan Port,Gwangyang Port)system we have supplied to thermal power plants atRMGC IN PUSAN NEWPORT CO.In December 2003, we secured our positionas a leading player in the RMGCmarket by winning a contract from PusanNewport Co. to build 49 RMGCs, thelargest single order ever placed in Korea.home and abroad, as well as through 3000 ton/hr capacityiron ore handling CSU to be delivered to POSCO in June2004.For customer oriented efforts in material handlingequipment business, we also provide COMIS (CraneOperation Maintenance Information System) apparatusto our clients to enable more effective operation andmaintenance of the equipment we have supplied.Besides our Changwon Plant, we also have factoriesin Haiphong, Vietnam and Lampung, Indonesia to supportthe success of our marketing activities. Engineersand quality management staff from our home offices

56are assigned to these factories, ensuring that all productsmanufactured in these factories are as good asthe ones manufactured in Changwon Plant, by applyingthe most strict production and quality managementprocedures.Korea and 12 units of RTGCs from JNPT, India besides49 units of RMGCs from Pusan Newport Co. Korea. Bothof the orders from PECT and JNPT are repeat ordersafter experiencing the superior quality of our cranessupplied.2003 REVIEWWe have achieved 173.7 billion won inIn March 2003, we made the last shipment of 10RTGCs among 28 contracted from SAGT (South Asiaorders as the demand for container handling equipmentincreased in 2003. In particular, we won theturnkey project awarded from Pusan Newport Co.for high-speed and large sized (5+1 stack 9 row)RMGCs. Compared to year 2002, our sales volumeincreased 205% also thanks to the RMQCs ordersfor 5 units from PECT, Korea, 2 units from Incheon Port,Gateway Terminal). Those perfect quality RTGCs weremanufactured at Lampung, Indonesia where our overseascrane factory is located. Based on this, we alsowon an order from JNPT (Jawaharlal Nehru PortTrust) to build 12 RTGCs, which will be completed withinrecord breaking 12 months at Lampung factory byutilizing accumulated technology and years of experience.March 273rd shipment of 10 RTGCs for SAGT(South Asia Gateway Terminal /Sri Lanka)May 234 RMQCs for JICT & Koja(Jakarta International ContainerTerminal / Indonesia)May 30contract making of 5 RMQCs for PusanEast Container Terminal(Shinsundae)PROJECTCLIENTCONTRACT AMOUNTCONTRACT PERIODMAIN CHARACTERISTICSMaterialHandlingEquipment3rd Shipment of10 RTGCs for SAGTSAGT(South Asia Gateway Terminals)31 billion wonApr. 1999 - Apr. 200328 RTGCs (Rubber TyredGantry Crane)4 RMQCs for JICT & KojaJICT(Jakarta InternationalContainer Terminal)23.5 billion wonOct. 2001 - May 20034 RMQCs (Rail MountedQuayside Cranes)2 RMQCs and 3 RTGCs forKorea Express Co.Korea Express Co.13.3 billion wonFeb. 2002 - Feb. 20032 RMQCs and 3 RTGCs

57SUPER POST-PANAMAX CRANE, PUSAN PORT, KOREAOctober 17contract making of 2 RMQCs forIncheon Port (Sun-Kwang)(Sun-Kwang Co.)September 16contract making of 12 RTGCs forJNPT(Jawaharlal Nehru Port Trust /India)December 30contract making of 49 RMGCs forPusan New Port(Pusan Newport Co.)2004 PREVIEW Our goals for 2004 include 105.9 billion wonin orders, 121.1 billion won revenues and 8 billionwon in operating profit.In domestic market, we believe we can achieve the goalsas there are number of expansion projects in linewith Northeast Asia hub port construction plans owingto public and private sectors.Cargo flows are increasing throughout the worldwhile there is the increasing demand for larger containershipsand new equipment. Since 50% of theseorders will be from the Southeast Asian market in whichour Material Handling BU has much experience andalso manufacturing factories. We expect to increaseour market share based on price and quality competitiveness.Accordingly, our Material Handling BU has set itsgoal for 2004 to increase its revenues by more than200% compared to year 2003 and make all-out effortsto achieve the goal.

CONSTRUCTIONEconomic development and construction go hand-in-hand in our industrialized world. Over the pasttwo decades, We've helped build Korea's modern infrastructure through a long list of civil constructionprojects that today keep people and goods flowing smoothly across the peninsula by road and rail.And We've played a key role in building nuclear,thermal and combined-cycle power plant that todaygenerate more advanced,cost-effective and reliable power and industrial plants for the world in the21st century.ULJIN NUCLEAR POWER PLANT UNITS 5 & 6STEAM GENERATOR INSTALLATION58FACILITIES Expressways Railways & Subways Bridges & Tunnels

Apartment Complexes Nuclear Power Plants Thermal Power Plant Transmission Facilities59

602003 REVIEW The Korean construction market in 2003 hasgrown by 23.2% and marked 102,450 billion won as anumber of private construction projects increased drasticallyin consequence of government reform for realestate policy. However, it is becoming gradually difficult towin public construction contracts due to increasing numberof competitors and ever-decreasing bidding price.Accordingly, actual circumstance of award shares in 2004have not given any favor to construction companies than2002In April 2003, Doosan integrated the Plant Construction BGand General Construction Division and has been runningit as one Business Group in order to overcome difficult businessconditions and maximize synergy between sales andproject management. It was a year of growth and developmentas the company also entered the private constructionmarket, established the PRM system, implementedknowledge management systems and developedprofessional competence.In 2003, the total amount of orders increased to 844 billionwon by 34.7% compared to the previous year, while salesreached 593.6 billion won with a growth rate of 7.4%; thisfigure accounted for 28.7% of the total sales of Doosan.Operating profit was reported at 72.6 billion won, showinga 189.2% increase compared to the previous year.The bases for this outstanding business performance areas follows:First, strategy focused on building a balanced portfolio toensure profitability and growth at the same time. Doosanwon nine contracts (222.9 billion won) after improving its2003 HIGHLIGHTSSeptember 9Completion of SeochoInterchange T/L ConstructionProjectTAEAN THERMAL POWER PLANT UNITS7 & 8 CONSTRUCTION PROJECTThe Taean Thermal Power Plant Units 7& 8 project will build two supercriticalpressure coal-fired power stations within46 months. It has ensued from theconstruction of Dangjin Thermal PowerPlant Units 5 & 6 where Doosan is tosupply equipment and build the plants.The project is an opportunity for Doosanto develop the capacity to handle turnkeyprojects. Doosan is expected to developcapabilities in carrying out EPC PJT in theKorean and overseas markets.competitiveness in contract bidding through profit-orientedbidding strategies while also becoming the main contractorfor the Taean Thermal Power Plant Units 7 & 8 (118.1billion won). Doosan was able to maintain its position as themarket leader in SOC by being awarded the Third GyeonginExpressway Construction Project (87.5 billion won) whilepromoting new business initiatives. Doosan also enteredthe private construction market by winning a 178.1 billionwon contract to build a residential complex in Jung-dong,Bucheon.Second, Doosan strove to ensure cost competitivenessthrough ‘Operational Excellence’ after recognizing costcompetitiveness as an essential element of survival in difficultbusiness conditions. Doosan made special effortsfor the systematic management of PJT by applying ‘QualityGate’ in all areas, while also operating Project Risk

90061800700600500REVENUES200320022001400300200703020InbillionsofKoreanwonORDERSYONGHUNG THERMAL POWER PLANT UNITS 1 & 2October 15Jung-dong Bucheon ResidentialComplex Construction ProjectOrderManagement (PRM) and conducting risk analysis by holdingBid Approval Committe (BAC). Doosan managed tosave 8.9 billion won on its budget by expanding outsourcingcapabilities through PSM activities, while continuing tomanage outstanding affiliates through a regular evaluationof affiliated companies.Third, Doosan made all-out efforts to maximize corporatevalue by building a knowledge management system andimproving its human resources development system.Knowledge management has been thoroughly implementedsince January 2004 after a ‘Knowledge Map’ wasbuilt upon successful/unsuccessful cases, and a numberof knowledge experts were selected and promotional plansestablished. In order to develop professional humanresources, Doosan offers its own version of training and educationalprograms.20032004KRW 900bilionPROJECTED 2004 ORDERSKRW 570bilionPROJECTED 2004 REVENUES20032004

622004 PREVIEW The construction market in2004 is expected to sink by 17.8% to 87 trillion woncompared to last year, since the number of privateconstruction projects is likely to decrease asa result of the housing stabilization program. Itwill become increasingly difficult to win public constructionprojects due to reductions in the SOC budgetand the increased implementation of lowestbidding policies.In order to cope with drastic changes in the constructionindustry, Doosan Construction Divisionaims to optimize its business portfolio. We haveDecember 30Dori Siheung-Namdong IncheonRoad Construction Project OrderULJIN NUCLEAR POWER PLANT UNIT 6 CONSTRUCTION SITEPROJECT CLIENT COUNTRYDangjin Thermal Power Plant Units 5 & 6 Korea East-West Power KoreaUljin Nuclear Power Plant Units 5 & 6 Korea Hydro and Nuclear Power KoreaYonghung Thermal Power Plant Units 1 & 2 Korea South-East Power KoreaDaegu-Pusan Expressway Korea Highway Corp. KoreaKyungbu High-Speed Railway Korea Train Express KoreaTaiwan High-Speed Railway Viaduct Taiwan High Speed Rail Corp. TaiwanPusan Subway Pusan Urban Transit Authority KoreaWoomyeonsan Tunnel Woomyeonsan Development Korea

established five strategies to improve competitivenessin the five areas of power plant construction, public projectmarketing, business planning, efficient business managementand human resources development.The first strategy is to maintain its position as marketleader in the Korean power plant market with a 20% marketshare, and establish a basis for overseas marketingby expanding business to T/L, LNG, heating systemsand other non-power products.The second strategy is to enhance market planning capabilitiesby establishing a network of clients to improvemarketing for public construction projects, ensure PQthrough technology development and implementation,and improve cost competitiveness by developingstandard pricing data and outstanding affiliated companies.The third strategy is to improve business analysis andplanning for proposed projects such as SOC private constructionto strengthen competitiveness in business planning,focus on the management of project schedulesto generate early profits and avoid risks, and use theexperience of affiliated companies.The fourth strategy is to hold kick-off meetings toensure the efficiency of project management, strengthenPRM activities, establish/utilize KMS, and promotethe integration/simplification of work process throughPI/ERP.63December 31Completion of WoomyeonsanTunnel Construction ProjectFinally, the fifth strategy is to develop and implementhuman resources development programs.With the help of this detailed tactical approach, DoosanConstruction Division has set the goal of achieving 900billion won in orders, 570 billion won in sales and 65 billionwon in operating profit in 2004.Construction Division is one of Doosan’s core Groupsbased on experience and technology accumulated in acountless number of construction projects. All employeesat Doosan will strive to maximize shareholder valueby gaining market competitiveness through internalperformance improvement.

64A BRIEF INTRODUCTION OF DOOSAN... Doosan Co. is one of the oldest companies in Korea. Beganas a small textiles store in Seoul in August 1896, Doosan is today a healthy 107-year-old conglomerateof 16 multinational companies involved in the industrial, consumer goods, and service sectors. Webuild everything from power plants to apartments. We make high-tech materials and machines. Webrew beer and serve food. We sell fashion and publish books. We build brands and invest in dreams.We educate and entertain. We consult and incubate. And we do all these things with professionalism,passion, and pride. Visit us at www.doosan.com to find out more about who we are and what we do.DOOSAN AFFILIATESDoosan CorporationLiquor BGFood BGFashion BGTrading BGPublishing BGElectro-Materials BGTechpack BGMagazine BUInformation &Communication BUTower BUBiotech BUF&S BUR&D CenterDoosan MotorsOricomDoosan EnterpriseDoosan BearsNeoplux CapitalNovosDoosan dndDoosan TowerDoosan Heavy Industries& ConstructionDoosan IndustrialDevelopmentHSD EngineDoosan MecatecSamhwa Crown & ClosureSemicontech

65OVERSEAS BRANCHESDoosan Heavy IndustriesAmerica Corp.140 Sylvan Avenue, Suite 3BEnglewood Cliffs, NJ 07632, USAPhone: 1-201-944-4554Fax: 1-201-944-5022/ 5053Doosan Heavy IndustriesJapan Corp.Room 2410, Mita Kokusai Bldg.1-4-28, Mita, Minato-ku,Tokyo 108-0073, JapanPhone: 81-3-3452-5451~3Fax: 81-3-3452-5624Doosan Malaysia Sdn. Bhd.(Kuala Lumpur Office)Letter Box No. 86, 22nd FloorUBN Tower, 10, Jalan P. RamleeKuala Lumpur 50250, MalaysiaPhone: 60-3-2026-8890Fax: 60-3-2026-8891Beijing OfficeRoom 1904, Landmark Bldg.8 North Dongsanhuan RoadChaoyang Dist., Beijing 100004, ChinaPhone: 86-10-6590-0924/0109Fax: 86-10-6590-0991Abu Dhabi OfficeAl Ghaith Tower 5th Floor,Room 508, Hamdan Street,P.O.Box 27767, Abu Dhabi, U.A.EPhone: 971-2-627-6273Fax: 971-2-627-6274Frankfurt Office4th Floor, Arabella CenterLyoner Strasse 44-4860528 Frankfurt am Main, GermanyPhone: 49-69-69-50040Fax: 49-69-69-500410Riyadh OfficeP.O. Box 9656, Riyadh 11423Saudi ArabiaPhone: 966-1-419-1920/1696/0397Fax: 966-1-419-1995Taipei Office704, No. 51, Keelung Road Sec.2, Taipei, TaiwanPhone: 886-2-2739-2255Fax: 886-2-2739-2266Schenectady OfficeRoom 33-202A, General Electric Bldg.One River Road, SchenectadyNY 12345, USAPhone: 1-518-385-5218/2629Fax: 1-518-385-4984Windsor Office20 International DriveWindsor, CT 06095, USAPhone: 1-860-731-6482/6479Fax: 1-860-731-6478OVERSEAS SUBSIDIARIESCHICO(Ceylon Heavy Industries & ConstructionCo., Ltd.)Oruwala Athurugiriya, Sri LankaPhone: 94-1-561310/561448Fax: 94-74-440030HANVICO(Han-Viet Heavy Industry & ConstructionCorp.)933 Ton Duc Thang Street Hong BangDist., Hai Phong, VietnamPhone: 84-31-712-708~711Fax: 84-31-712-714~5HFC16650 Westgrove Drive, #500Addison, TX 75001, USAPhone: 1-972-367-4657, 4667Fax: 1-972-367-4689, 4699Hanjung Power Ltd.P.O. Box 2803, Boroko, NCDPort Moresby, Papua New GuineaPhone: 675-320-0529/321-2932Fax: 675-321-2984PT. Doosan IndonesiaJl. Raya Soekarno-Hatta Km. 115 Srengsem, PanjangBandar Lampung, IndonesiaPhone: 62-721-32288/32292Fax: 62-721-33216DOMESTIC AFFILIATESDoosan Mecatec Co., Ltd.64, Sincheon-dong, ChangwonGyeongsangnam-do, KoreaPhone: 82-55-279-5555Fax: 82-55-279-5777HSD Engine Co., Ltd.69-3, Sincheon-dong, ChangwonGyeongsangnam-do, KoreaPhone: 82-55-260-6001Fax: 82-55-260-6983

CHANGWON PLANT, DOOSAN HEAVY INDUSTRIES & CONSTRUCTION66

67Financial StatementsIndependent Auditors’ Report68 70 72 73 74Balance SheetsStatements of IncomeStatements of Appropriations of Retained EarningsStatements of Cash Flows

68INDEPENDENT AUDITORS’ REPORTTo the Stockholders and Board of Directors of Doosan Heavy Industries and Construction Co., Ltd.We have audited the accompanying non-consolidated balance sheets of Doosan Heavy Industries and Construction Co.,Ltd. (the "Company") as of December 31, 2003 and 2002, and the related non-consolidated statements of income,appropriations of retained earnings and cash flows for the years then ended (all expressed in Korean won). Thesefinancial statements are the responsibility of the Company's management. Our responsibility is to express an opinionon these financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit also includes assessing the accounting principles usedand 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, such non-consolidated financial statements present fairly, in all material respects, the financial positionof the Company as of December 31, 2003 and 2002, and the results of its operations, the appropriations of its retainedearnings and its cash flows for the years then ended in conformity with financial accounting standards generallyaccepted in the Republic of Korea.Without qualifying our opinion, we draw attention to the following:

69The 2003 non-consolidated financial statements of the Company have been prepared in accordance with Statements ofKorea Accounting Standards (“SKAS”) No. 2 through No. 9 which are effective from the fiscal year beginning afterDecember 31, 2002. The Company early adopted SKAS No. 6 in 2002 and accordingly, proposed appropriations ofretained earnings, including proposed dividends, are not reflected in the accompanying balance sheets until approvedby shareholders. Except for SKAS No.8, “Investment in Securities”, the Company’s accounting policies used in thepreparation of the 2002 non-consolidated financial statements are the same as those used in the 2003 nonconsolidatedfinancial statements.The Company had sales to its related parties, including HSD Engine Co. Ltd., totaling 162 billion and 217 billion,and made purchases from its related parties, totaling 71 billion and 166 billion, during the years ended December31, 2003 and 2002, respectively. In addition, the Company has acquired unguaranteed privately placed bonds issued byKorea Industrial Development for 117 billion during the year ended December 31, 2003. The related receivableswere 150 billion and 26 billion, and the related payables were 36 billion and 39 billion as of December 31, 2003and 2002, respectively.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 andcash flows in accordance with accounting principles and practices generally accepted in countries other than theRepublic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such financialstatements may differ from those generally accepted and applied in other countries. Accordingly, this report and theaccompanying financial statements are for use by those knowledgeable about Korean accounting procedures andauditing standards and their application in practice.February 7, 2004Deloitte ToucheTohmatsu

BALANCE SHEETS70ASSETS 2003 2002In thousands of Korean wonCURRENT ASSETSCash and cash equivalents 218,293,329 211,975,507Short-term financial instruments 167,250,349 113,676,934Short-term investment securities 1,892,038 78,001,987Accounts and notes receivable - netTrade 619,847,741 724,212,236Other 59,336,768 109,419,117Accrued income 515,658 514,145Short-term loans 296,310 1,094,428Inventories 85,447,522 81,915,171Advance payments - net 34,371,324 31,141,346Prepaid expenses 11,869,847 7,640,346Prepaid taxes and other 5,115,842 1,184,888Total current assets 1,204,236,728 1,360,776,105NON-CURRENT ASSETSInvestments and other assetsLong-term financial instruments 11,000 80,065Long-term investment securities 153,447,360 103,506,888Equity securities accounted for using the equity method 347,883,228 245,249,469Long-term loans 129,623,959 6,221,787Long-term receivables - net 28,384,163 32,656,833Guarantee deposits 37,783,781 113,614,113Deferred income tax assets 69,821,044 92,087,115Other 10,003,350 7,526,083Total investments and other assets 776,957,885 600,942,353Property, plant and equipmentCost 1,503,074,628 1,535,704,951Less accumulated depreciation (502,277,022) (451,306,809)Property, plant and equipment - net 1,000,797,606 1,084,398,142Intangible assets 54,934,920 48,197,477Total non - current assets 1,832,690,411 1,733,537,972TOTAL ASSETS 3,036,927,139 3,094,314,077

71LIABILITIES AND STOCKHOLDERS’ EQUITY 2003 2002In thousands of Korean wonCURRENT LIABILITIESAccounts and notes payableTrade 211,262,358 281,280,977Other 91,484,714 97,662,290Short-term borrowings 111,531,333 108,915,990Advance receipts 21,335,885 15,557,854Withholdings 19,549,900 10,023,081Accrued expenses 22,252,976 10,753,181Income taxes payable — 11,978,414Billings in excess of costs and recognized profit 222,117,799 141,128,403Current portion of convertible bonds - plus accrued interest and net of discounts — 34,534,321Current portion of long-term debt 131,958,888 153,631,459Total current liabilities 831,493,853 865,465,970LONG-TERM LIABILITIESLong-term debt - net of current portion 387,481,664 338,331,249Long-term accounts payable - other 24,321,209 31,338,003Guarantee deposits received 1,531,460 5,363,619Accrued severance indemnities- net of transfers to the National Pension Fundand deposits for severance indemnities 82,532,010 96,664,066Reserve for loss on construction contracts 4,412,180 10,088,603Reserve for warranty costs 52,472,933 28,875,012Reserve for penalties for delays 5,510,522 6,175,487Retention for warranty 65,227,551 51,861,738Total long-term liabilities 623,489,529 568,697,777Total liabilities 1,454,983,382 1,434,163,747STOCKHOLDERS’ EQUITYCommon stock 521,000,000 521,000,000Capital surplusAsset revaluation reserve 594,261,662 594,261,662Other capital surplus 2,618,558 2,618,558Total capital surplus 596,880,220 596,880,220Retained earningsLegal reserve 59,683,000 58,383,000Reserve for corporate rationalization 42,807,000 36,407,000Other reserves 523,964,695 467,398,028Retained earnings before appropriations(Net income of 27,214,890 in 2003 and 77,338,111 in 2002) 27,092,436 77,165,667Total retained earnings 653,547,131 639,353,695Capital adjustment accountsTreasury stock (151,490,602) (151,490,602)Loss on valuation of investment securities (27,641,331) (10,653,331)Overseas operations translation debit (11,613,181) (13,550,790)Gain on valuation of forward contracts 389,686 78,201,243Stock options 871,834 409,895Total capital adjustment accounts (189,483,594) (97,083,585)Total stockholders' equity 1,581,943,757 1,660,150,330TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 3,036,927,139 3,094,314,077AS OF DECEMBER 31, 2002 AND 2001

STATEMENTS OF INCOME722003 2002In thousands of Korean won, except for share dataNET SALES 2,067,673,054 2,771,630,264COST OF SALES (1,807,630,833) (2,452,849,495)GROSS PROFIT 260,042,221 318,780,769SELLING AND ADMINISTRATIVE EXPENSES (192,206,792) (168,724,921)OPERATING INCOME 67,835,429 150,055,848OTHER INCOME (EXPENSES)Interest income 16,376,048 20,745,669Interest expense (25,640,553) (42,923,880)Dividend income 5,616,714 1,181,286Gain (loss) on foreign currency exchange - net (6,333,051) 10,275,185Gain (loss) on foreign currency translation - net (6,363,148) 14,644,225Loss from strikes — (28,430,732)Loss on valuation of short-term investment securities-net — (5,014,748)Reversal of allowance for doubtful accounts 1,805,858 1,591,306Loss on valuation of inventories (485,613) (94,085)Gain on disposal of investment securities - net 49,260,066 10,625Impairment losses on investment securities (6,293,694) (10,935,935)Gain (loss) on valuation of investment securitiesusing the equity method of accounting - net 20,439,058 (9,457,743)Gain (loss) on disposal of property, plant and equipment - net 1,383,261 (5,287,520)Impairment losses on development costs (217,967) (7,268,075)Gain on valuation of forward contracts 16,562,576 334,178Gain on forward contract transactions - net 59,978,503 28,480,012Restructing expenses (122,870,994)Other - net (23,265,916) (13,572,872)Other expenses - net (20,048,852) (45,723,104)ORDINARY INCOME AND INCOME BEFORE INCOME TAXES 47,786,577 104,332,744INCOME TAX EXPENSE (20,571,687) (26,994,633)NET INCOME 27,214,890 77,338,111BASIC ORDINARY AND NET INCOME PER SHARE 318 904DILUTED ORDINARY AND NET INCOME PER SHARE 318 879

STATEMENTS OF APPROPRIATIONS OF RETAINED EARNINGS73In thousands of Korean won2003 2002In thousands of Korean wonRETAINED EARNINGS BEFORE APPROPRIATIONSBeginning of the year 70,329 10,811Loss on valuation of investmentsusing the equity method of accounting (192,783) (183,255)Net income for the year 27,214,890 77,338,111End of the year 27,092,436 77,165,667TRANSFERS FROM VOLUNTARY RESERVESReserve for export losses 3,100,000 5,240,000Reserve for overseas market exploration 333,333 1,833,333Reserve for technology development 28,333,333 20,000,000Reserve for overseas investment losses — 2,110,000Reserve for overseas business losses 2,900,000 5,350,000Total 34,666,666 34,533,333APPROPRIATIONSLegal reserve (1,300,000) (1,300,000)Reserve for corporate rationalization — (6,400,000)Reserve for technology development — (2,300,000)Reserve for redemption of borrowings (47,600,000) (88,800,000)Cash dividends (12,828,671) (12,828,671)Total (61,728,671) (111,628,671)UNAPPROPRIATED RETAINED EARNINGSTO BE CARRIED FORWARD TO THE NEXT YEAR 30,431 70,329FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

STATEMENTS OF CASH FLOWS74In thousands of Korean won2003 2002In thousands of Korean wonCASH FLOWS FROM OPERATING ACTIVITIESNet income for the year 27,214,890 77,338,111Additions of expenses not involving cash payments :Stock compensation cost 461,939 409,895Provision for severance indemnities 34,305,089 29,768,375Depreciation 73,296,793 76,394,253Amortization of intangible assets 9,413,257 14,838,983Bad debts 3,050,239 —Provision for warranty costs 26,137,670 3,717,386Provision for penalties for delays 3,500,944 611,869Amortization of discounts on debentures issued 3,009 949,055Loss on foreign currency translation 9,035,006 9,007,994Loss from strikes — 4,993,980Loss on valuation of current investment securities — 5,032,314Loss on valuation of inventories 485,613 94,085Loss on disposal of investment securities 619,826 —Loss on impairment of investment securities 6,293,694 10,935,935Loss on valuation of investments using the equity method of accounting — 9,457,743Loss on disposal of property, plant and equipment 7,649,443 5,740,760Impairment losses on development costs 217,967 7,268,075Other — 3,121,856Sub-total 174,470,489 182,342,558Deductions of revenues not involving cash receipts :Gain on foreign currency translation (2,671,858) (23,652,220)Gain on valuation of current investment securities — (17,566)Gain on valuation of investments using the equity method of accounting (20,439,058) —Gain on disposal of investment securities (49,879,892) (10,625)Gain on disposal of property, plant and equipment (9,032,704) (453,240)Reversal of allowance for doubtful accounts (1,805,858) (1,591,306)Gain on valuation of forward contracts (16,562,576) (334,178)Reversal of reserve for losses on construction contracts (5,676,424) (2,696,760)Payment of warranty costs (2,539,749) (5,290,065)Payment of penalties for delays (4,165,909) (5,078,624)Other (334,344) (227,599)Sub-total (113,108,372) (39,352,183)Changes in assets and liabilities related to operating activities :Decrease (increase) in accounts and notes receivable - trade 100,009,622 (98,512,242)Decrease (increase) in accounts and notes receivable - other (9,488,814) 22,110,546Decrease (increase) in accrued income (1,513) 5,001,602Decrease (increase) in inventories (4,017,964) 84,708,628Decrease (increase) in advance payments (2,528,678) 36,126,516Increase in prepaid expenses (4,229,501) (2,054,247)Decrease (increase) in other current assets (3,913,625) 168,370Decrease in deferred income tax assets 22,266,072 15,016,219Increase (decrease) in accounts and notes payable - trade (70,687,305) 91,716,867Decrease in accounts and notes payable - other (9,703,590) (43,877,626)Increase (decrease) in advance receipts 5,778,031 (9,641,967)Increase in withholdings 9,527,912 3,479,544Increase (decrease) in accrued expenses 11,499,794 (11,969,976)Increase (decrease) in income taxes payable (11,978,414) 11,978,414Decrease in long -term accrued interest (4,527,330) —Increase (decrease) in billings in excess of costs and recognized profit 80,989,396 (119,147,025)Decrease in long-term accounts and notes payable (3,482,000) —Decrease in guarantee deposits received (3,813,996) (772,601)Increase in retention for warranty 11,485,899 7,702,577Payment of severance indemnities (70,978,063) (51,426,024)Transfer of accrued severance indemnities from affiliates 339,579 119,399Decrease in transfers to the National Pension Fund 2,420,032 1,760,029Sub-total 44,965,544 (57,512,997)Net cash provided by operating activities 133,542,551 162,815,489

STATEMENTS OF CASH FLOWS75In thousands of Korean won2003 2002In thousands of Korean wonCASH FLOWS FROM INVESTING ACTIVITIESCash inflows from investing activities :Decrease in short-term financial instruments — 43,388,708Decrease in current investment securities 104,176,016 —Decrease in short-term loans 798,117 —Decrease in long-term financial instruments 69,064 516,000Disposal of long-term investment securities — 71,720Disposal of equity securities accounted for using the equity method 30,478,318 4,115,490Decrease in long-term loans — 687,926Decrease in long-term receivables 6,687,013 6,509,201Decrease in guarantee deposits 75,724,933 38,371,274Decrease in deposits for severance indemnities 19,176,879 12,813,491Disposal of property, plant and equipment 42,357,373 6,480,487Sub-total 279,467,713 112,954,297Cash outflows for investing activities :Increase in short-term financial instruments (53,573,415) —Increase in current investment securities — (72,391)Acquisition of long-term investment securities (56,944,668) (60,560,951)Acquisition of equity securities accounted for using the equity method (107,949,302) (63,440,570)Increase in long-term loans (123,402,172) —Increase in short-term loans — (155,862)Acquisition of other investments (2,399,940) (4,178,335)Acquisition of property, plant and equipment and intangibles (46,434,606) (67,848,718)Decrease in guarantee deposits received (18,160) (13,987,199)Sub-total (390,722,263) (210,244,026)Net cash used in investing activities (111,254,550) (97,289,729)CASH FLOWS FROM FINANCING ACTIVITIESCash inflows from financing activities :Increase in short-term debt — 1,262,165Increase in long-term debt 231,447,156 1,017,487,635Increase in overseas operations translation debit 1,937,609 —Sub-total 233,384,765 1,018,749,800Cash outflows for financing activities :Payment of dividends (12,828,671) (12,856,859)Decrease in short-term borrowings (2,508,271) —Repayment of current portion of debentures — (300,000,000)Repayment of current portion of conversion bonds (30,010,000) —Repayment of current portion of long-term debt (153,631,460) (117,528,364)Repayment of long-term debt (50,376,542) (564,944,873)Decrease in overseas operations translation debit — (25,879,044)Sub-total (249,354,944) (1,021,209,140)Net cash used in financing activities (15,970,179) (2,459,340)NET INCREASE IN CASH ANDCASH EQUIVALENTS 6,317,822 63,066,420CASH AND CASH EQUIVALENTSAT THE BEGINNING OF THE YEAR 211,975,507 148,909,087CASH AND CASH EQUIVALENTSAT THE END OF THE YEAR 218,293,329 211,975,507FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

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