SAMSUNG HEAVY INDUSTRIES CO., LTD. Separate Financial

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SAMSUNG HEAVY INDUSTRIES CO., LTD.

Separate Financial Statements

December 31, 2020

(With Independent Auditors’ Report Thereon)

Contents

Page

Independent Auditors’ Report 1

Separate Statements of Financial Position 6

Separate Statements of Loss 8

Separate Statements of Comprehensive Loss 9

Separate Statements of Changes in Equity 10

Separate Statements of Cash Flows 11

Notes to the Separate Financial Statements 12

Independent Auditors’ Report on Internal Control over Financial Reporting 95

Report on the Operations of Internal Control over Financial Reporting 97

Independent Auditors’ Report

Based on a report originally issued in Korean

To the Board of Directors and Stockholders of Samsung Heavy Industries Co., Ltd.:

Opinion We have audited the separate financial statements of Samsung Heavy Industries Co., Ltd. (the “Company”), which comprise the separate statement of financial position as of December 31, 2020, the separate statement of loss and comprehensive loss, changes in equity and cash flows for the year then ended, and notes, including significant accounting policies and other explanatory information.

In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of the Company as of December 31, 2020, and its separate financial performance and its separate cash flows for the year then ended in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

We also have audited, in accordance with Korean Standards on Auditing (“KSAs“), the Company’s Internal Control over Financial Reporting (“ICFR”) as of December 31, 2020 based on the criteria established in Conceptual Framework for Designing and Operating Internal Control over Financial Reporting issued by the Operating Committee of Internal Control over Financial Reporting in the Republic of Korea, and our report dated March 11, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion We conducted our audit in accordance with Korean Standards on Auditing (“KSAs”). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Separate Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the separate financial statements in Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the separate financial statements as of and for the year ended December 31, 2020. These matters were addressed in the context of our audit of the separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

(1) Revenue recognition based on the input method

As described in the Note 3 to the separate financial statements, total contract revenue will be the amount agreed in the initial contract, however, it is affected by varieties of uncertainties that depend on the outcome of future event, and increased from variations in the original contract work, plus incentive payments and claims, and on the other hand, it is decreased by penalties attributable to the Company in the completion of the contract.

Also, the contract revenue is affected by the progress towards completion of contract that is measured by the proportion that costs incurred to date bear to the estimated total contract costs based on the future estimated material costs, labor costs, construction period and others.

As described in the Note 3 to the separate financial statements, the changes in estimated total contract revenue and costs may have significant impacts on the profit or loss for the current period (or for the future period); therefore, we identified revenues recognized by the input method as a key audit matter.

(2) Uncertainty of estimated total contract costs

As described in the Note 3 to the separate financial statements, total contract costs are calculated based on estimated material costs, labor costs and construction period, and uncertainty risk related to exchange rate fluctuation, changes of steel prices and changes in production hours exists. Accordingly, considering the impacts on profit or loss for the year ended December 31, 2020 and future period, we identified a key audit matter associated with uncertainty of estimated total contract costs.

The primary procedures we performed to address this key audit matter included the following: - Testing the design and operating effectiveness of certain internal controls over the process related to determination of total contract costs - Making inquiries and analytical review on changes in major cost components of total contract costs - For the constructions of vessels completed, performing retrospective reviews on projects in which significant changes occurred in total contract costs - Assessing the cause of significant changes in total contract cost and if necessary, inspecting the related documents - Performing analytical review on estimated total contract costs among similar vessels - For selected major projects, inspection of documents for the underlying data of estimated total contract costs provided by operation divisions - Comparing material costs order details provided by purchasing department by project with the total contract costs - Comparing total contract costs in the Company’s annual business plan and those used in calculating the percentage-of-completion for projects under construction - Inspection of documents to assess whether estimated total contract costs were approved by appropriate person

(3) Assessment of the percentage-of-completion

As described in the Note 2 to the separate financial statements, the Company should include only incurred contract cost for work performed to estimated total contract costs in case the percentage-of-completion is calculated based on estimated total contract costs. There is a risk in that changes in cumulative contract costs may include the costs incurred that are attributable to inefficiencies in the construction progress. Therefore, considering the uncertainty of changes in revenue, we identified assessment of the percentage-of- completion as a key audit matter.

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- For selected samples, inspection of relevant documents to assess the existence of the accumulated material costs incurred - Engaging our IT specialists to assist us in performing risk scenarios test including evaluation on whether the costs are allocated appropriately to each project - Visiting the sampled ship sites under construction

(4) Collectability of contract assets

As described in the Note 3 to the separate financial statements, the Company assesses at the end of each reporting period whether there is an objective evidence that a contract asset is impaired. The Company considers that there is an objective evidence of impairment if indicators, including financial difficulties of a customer, an increase in possibility of contract cancellation due to delay in the construction or a decrease in ship price, or a delay in delivery or others, are identified. After the assessment of impairment indicators, the Company recognizes impairment losses in the case that there is an objective evidence of impairment and that the impairment event has an impact on the future cash flows from constructions which can be reliably estimated. Considering that uncertainties in collectability of contract assets has been increased due to termination of contract and delay in delivery mainly resulted from certain customers’ financial difficulties from the extended global oil price decline, we identified collectability of contract assets as a key audit matter.

The primary procedures we performed to address this key audit matter included the following: - Testing the design and operating effectiveness of certain internal controls over the process related to review of an indication of impairment and collectability of contract asset - Making inquiries and inspection of sampled documents over payment terms, penalties for delay, delivery time, and other obligations for the project in which significant increase in contract assets - Assessing management’s basis on estimates for collectability of the contract assets that had indication of an impairment - For selected major customers, sending confirmation to assess contract price, cumulative billing amount and cumulative collection receipt

(5) Impairment evaluation of cash-generating units

As described in the Note 2 to the separate financial statements, the Company assesses at the end of each reporting period whether there is an objective evidence that an asset is impaired. If there are indications of impairment to the cash-generating unit, the Company determines reflection of the impairment losses allocated to each individual assessment unit by comparing the recoverable amount and carrying amount. As of December 31, 2020, the Company determined that there are indications of impairment considering continuous operating losses and decrease in orders.

As of December 31, 2020, the Company performed the impairment assessment on the cash-generating unit where impairment indicators such as long-term stock price declines and poor performance were identified. The recoverable amount of the cash-generating unit was estimated for the impairment assessment, and the recoverable amount is determined to be the larger of the value in use or the fair value less costs to sell. Considering the significant management judgment, possibility of management bias, and potential impact of impairment in the separate financial statement, we identified impairment assessment of the cash-generating unit as a key audit matter.

The primary procedures we performed to address this key audit matter included the following: - Testing the design and operating effectiveness of certain internal controls over the process related to the impairment - Assessing the independence and qualification of external experts engaged by the Company - Engaging our valuation specialists to assist us in evaluating evaluation methodology and major assumptions including discount rate - Comparing financial data used for impairment assessment and long-term business plans approved by management - Comparing the future cash flows forecasts prepared in prior year with the current year’s performance to assess the Company’s ability to accurately forecast - Assessing the reliability of key forecasts used in estimating fair value less costs to sell and accuracy of calculation details - Assessing the accuracy of carrying amount which compared to recoverable amount

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Other Matter The separate financial statements of the Company for the year ended December 31, 2019 were audited by another auditor who expressed an unqualified opinion on those statements on March 12, 2020.

Responsibilities of Management and Those Charged with Governance for the Separate Financial Statements Management is responsible for the preparation and fair presentation of the separate financial statements in accordance with K-IFRS, and for such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the separate financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Separate Financial Statements Our objectives are to obtain reasonable assurance about whether the separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with KSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these separate financial statements.

As part of an audit in accordance with KSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

- Identify and assess the risks of material misstatement of the separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. - Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. - Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. - Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, then we are required to draw attention in our auditors’ report to the related disclosures in the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern. - Evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

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We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Chul-Young Kim.

Seoul, Korea March 11, 2021

This report is effective as of March 11, 2021, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

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SAMSUNG HEAVY INDUSTRIES CO., LTD. Separate Statements of Financial Position As of December 31, 2020 and 2019

(In won) Note December 31, 2020 December 31, 2019

Assets Cash and cash equivalents 4,8 W 943,166,362,823 319,472,205,767 Short-term financial instruments 5,8 492,662,340,293 446,348,342,616 Trade receivables 6,8,10 258,947,494,012 176,413,104,580 Contract assets 6,7,10 2,207,248,195,454 2,563,269,382,794 Other receivables 8,10 34,919,170,036 57,017,494,178 Advance payments 411,438,986,913 347,518,386,636 Prepaid expenses 43,975,947,781 70,087,097,000 Current derivative financial instruments 8,9,11,35 271,790,072,565 120,246,427,926 Current firm commitment assets 11 12,219,115,262 209,504,824,149 Inventories 12 1,815,561,342,308 2,333,927,002,319 Prepaid income tax 3,022,214,665 3,718,661,378 Other current financial assets 8,13,21 76,766,948,838 83,476,980,783 Other current assets 54,068,120,082 69,225,751,495 Total current assets 6,625,786,311,032 6,800,225,661,621

Financial assets measured at FVTPL 8,9,14 12,839,859,065 12,836,463,941 Financial assets measured at FVOCI 8,9,15 25,981,110,000 16,158,580,000 Investments in subsidiaries, associates and joint ventures 16 451,672,320,994 453,995,250,113 Property, plant and equipment 17 4,925,704,433,758 5,112,580,259,051 Right-of-use assets 18 - 53,007,727,472 Investment properties 19 17,774,231,028 16,460,521,879 Intangible assets 20 26,060,176,572 44,449,736,524 Long-term prepaid expenses 24,639,215,084 23,958,412,989 Non-current derivative financial instruments 8,9,11,35 95,475,376,055 80,319,834,899 Non-current firm commitment assets 11 3,121,705,777 167,469,486,027 Non-current trade receivables 8,10 13,516,847,174 16,891,144,201 Deferred tax assets 32 452,947,998,399 455,060,653,878 Other non-current financial assets 5,8,13 4,839,098,538 6,055,560,937 Total non-current assets 6,054,572,372,444 6,459,243,631,911

Total assets W 12,680,358,683,476 13,259,469,293,532

See accompanying notes to the separate financial statements.

6 SAMSUNG HEAVY INDUSTRIES CO., LTD. Separate Statements of Financial Position, Continued As of December 31, 2020 and 2019

(In won) Note December 31, 2020 December 31, 2019

Liabilities Trade payables 8,35 W 418,643,061,853 644,475,707,997 Short-term borrowings 8,21,35 1,811,810,231,543 1,634,926,162,646 Other payables 8,35 102,800,283,469 70,879,756,729 Contract liabilities 6,7 1,716,202,360,244 1,551,804,906,973 Accrued expenses 8,35 140,536,979,462 198,825,170,922 Current derivative financial instruments 8,9,11,35 221,998,852,568 414,832,926,016 Current firm commitment liabilities 11 275,560,263,880 237,458,028,206 Current portion of long-term debts 8,21,35 1,574,340,239,578 1,332,104,781,824 Current portion of lease liabilities 18,35 16,588,716,573 24,730,558,987 Provision for construction losses 6 119,049,616,343 115,599,428,130 Provision for construction warranty 6 233,150,722,208 242,741,130,647 Other current provisions 23 706,847,701,203 385,508,140,980 Other current liabilities 18,834,935,630 30,211,198,011 Total current liabilities 7,356,363,964,554 6,884,097,898,068

Debentures 8,21,35 208,668,832,032 269,736,576,155 Long-term borrowings 8,21,35 1,098,800,000,000 431,802,000,000 Lease liabilities 18,35 17,815,978,757 29,743,210,608 Net defined benefit liabilities 22 15,332,810,915 46,453,949,030 Provision for construction warranty 6 100,752,674,552 89,157,426,134 Other non-current provisions 23 15,634,000,000 15,634,000,000 Non-current derivative financial instruments 8,9,11,35 35,407,739,052 193,378,000,382 Non-current firm commitment liabilities 11 94,957,563,584 112,749,785,662 Other non-current financial liabilities 8,13,35 49,465,015,042 42,786,004,365 Total non-current liabilities 1,636,834,613,934 1,231,440,952,336

Total liabilities 8,993,198,578,488 8,115,538,850,404

Equity Ordinary share 3,150,000,000,000 3,150,000,000,000 Preferred share 574,225,000 574,225,000 Share capital 24 3,150,574,225,000 3,150,574,225,000 Share premium 24 944,052,385,087 944,052,385,087 Accumulated other comprehensive income 25 701,697,525,842 740,749,839,832 Other components of equity 25 (963,896,146,243) (963,896,146,243) Retained earnings (accumulated deficit) 26 (145,267,884,698) 1,272,450,139,452 Total equity 3,687,160,104,988 5,143,930,443,128

Total liabilities and equity W 12,680,358,683,476 13,259,469,293,532

See accompanying notes to the separate financial statements

7 SAMSUNG HEAVY INDUSTRIES CO., LTD. Separate Statements of Loss For the years ended December 31, 2020 and 2019

(In won) Note 2020 2019

Revenue 6,27,36 W 6,825,532,312,130 7,098,805,561,786 Cost of sales 28 7,315,384,995,531 7,149,438,676,277 Gross loss (489,852,683,401) (50,633,114,491)

Selling, general and administrative expenses 28,29 522,182,861,840 599,450,834,214 Operating loss (1,012,035,545,241) (650,083,948,705)

Other non-operating income 30 1,173,826,121,064 1,593,599,069,109 Other non-operating expenses 30 1,350,102,934,096 1,983,680,516,439 Finance income 31 318,517,336,976 298,712,657,046 Finance costs 31 543,427,298,991 421,702,422,588 Loss before income tax (1,413,222,320,288) (1,163,155,161,577)

Income tax expense (benefit) 32 14,823,094,358 188,241,693,941

Loss for the year W (1,428,045,414,646) (1,351,396,855,518)

Loss per share Basic loss per share Ordinary shares 33 (2,364) (2,237) Preferred shares 33 (2,364) (2,237)

See accompanying notes to the separate financial statements.

8 SAMSUNG HEAVY INDUSTRIES CO., LTD. Separate Statements of Comprehensive Loss For the years ended December 31, 2020 and 2019

(In won) Note 2020 2019

Loss for the year W (1,428,045,414,646) (1,351,396,855,518)

Other comprehensive income (loss) Items that will not be reclassified to profit or loss Gain (loss) on valuation of financial assets measured at FVOCI 8 7,445,477,740 2,128,933,156 Remeasurements of net defined benefit liabilities 22 8,388,965,458 9,683,705,596 Revaluation of property, plant and equipment 17 (6,340,143,527) - Items that are or may be reclassified subsequently to profit or loss Gain (loss) on valuation on derivative instruments 11 (38,219,223,165) (81,537,182,799) (28,724,923,494) (69,724,544,047)

Total comprehensive loss for the year W (1,456,770,338,140) (1,421,121,399,565)

See accompanying notes to the separate financial statements.

9 SAMSUNG HEAVY INDUSTRIES CO., LTD. Separate Statements of Changes in Equity For the years ended December 31, 2020 and 2019

Accumulated other comprehensive Other components Retained earnings

(In won) Share capital Share premium income of equity (accumulated deficit) Total equity

Balance at January 1, 2019 W 3,150,574,225,000 944,052,385,087 823,439,285,766 (963,896,146,243) 2,610,882,093,083 6,565,051,842,693 Total comprehensive income (loss) for the period Loss for the year - - - - (1,351,396,855,518) (1,351,396,855,518)

Gain (loss) on valuation of financial assets measured at FVOCI - - (955,525,680) - 3,084,458,836 2,128,933,156

Remeasurements of net defined benefit liabilities - - - - 9,683,705,596 9,683,705,596

Gain (loss) on valuation on derivative instruments - - (81,537,182,799) - - (81,537,182,799) Transactions with owners of the Company, recognized

directly in equity Reclassification of revaluation surplus - - (196,737,455) - 196,737,455 -

Balance at December 31, 2019 W 3,150,574,225,000 944,052,385,087 740,749,839,832 (963,896,146,243) 1,272,450,139,452 5,143,930,443,128

Balance at January 1, 2020 W 3,150,574,225,000 944,052,385,087 740,749,839,832 (963,896,146,243) 1,272,450,139,452 5,143,930,443,128

Total comprehensive income (loss) for the period

Loss for the year - - - - (1,428,045,414,646) (1,428,045,414,646)

Gain (loss) on valuation of financial assets measured at FVOCI - - 7,445,477,740 - - 7,445,477,740

Remeasurements of net defined benefit liabilities - - - - 8,388,965,458 8,388,965,458

Decrease in revaluation surplus - - (6,340,143,527) - - (6,340,143,527)

Gain (loss) on valuation on derivative instruments - - (38,219,223,165) - - (38,219,223,165) Transactions with owners of the Company, recognized

directly in equity

Reclassification of revaluation surplus - - (1,938,425,038) - 1,938,425,038 -

Balance at December 31, 2020 W 3,150,574,225,000 944,052,385,087 701,697,525,842 (963,896,146,243) (145,267,884,698) 3,687,160,104,988

See accompanying notes to the separate financial statements. 10 SAMSUNG HEAVY INDUSTRIES CO., LTD. Separate Statements of Cash Flows For the years ended December 31, 2020 and 2019

(In won) Note 2020 2019

Cash flows from operating activities Cash generated from operations 34 W (126,550,165,715) (857,932,434,601) Interest received 22,548,741,329 39,559,470,325 Interest paid (150,424,091,594) (117,221,000,229) Dividends received 8 160,020,000 367,327,350 Income taxes paid (2,843,238,227) (4,764,951,675) Net cash used in operating activities (257,108,734,207) (939,991,588,830)

Cash flows from investing activities Acquisition of short-term financial instruments (1,832,983,340,458) (814,880,544,412) Proceeds from disposal of short-term financial

instruments 1,761,266,231,312 724,789,493,094 Proceeds from disposal of financial assets

measured at FVTPL 14 198,473,945 70,883,552 Proceeds from disposal of financial assets

measured at FVOCI 15 - 4,509,087,698 Acquisition of investments in subsidiaries,

associates and joint ventures 16 (230,150,881) (71,952,000) Proceeds from disposal of investments in

subsidiaries, associates and joint ventures 16 - 40,839,988 Acquisition of property, plant and equipment 17 (89,144,187,240) (68,875,566,608) Proceeds from disposal of property, plant and

equipment 17 10,975,072,340 1,298,528,661 Proceeds from disposal of intangible assets 20 5,324,000 234,000,000 Acquisition of other current financial assets (76,488,160,000) - Proceeds from disposal of other current financial

assets 78,262,508,300 - Acquisition of other non-current financial assets (1,295,213,341) (1,116,398,996) Proceeds from disposal of other non-current

financial assets 933,074,540 2,487,400,187 Net cash used in investing activities (148,500,367,483) (151,514,228,836)

Cash flows from financing activities Proceeds from short-term borrowings 21,34 2,562,564,704,612 1,598,561,321,940 Repayment of short-term borrowings 21,34 (2,349,925,412,971) (1,719,320,506,976) Repayment of current portion of long-term debts 21,34 (1,310,099,000,000) (708,232,000,000) Issuance of debentures 21,34 248,489,570,000 484,247,510,000 Repayment of debentures 21,34 (19,961,579,800) - Proceeds from long-term borrowings 21,34 1,938,954,000,000 935,567,000,000 Repayment of long-term borrowings 21,34 - (6,090,000,000) Payment of lease liabilities 18,34 (40,333,754,385) (56,905,068,349) Net cash provided by financing activities 1,029,688,527,456 527,828,256,615

Net increase (decrease) in cash and cash equivalents 624,079,425,766 (563,677,561,051) Cash and cash equivalents at January 1 319,472,205,767 882,415,990,716 Effects of exchange rate changes on cash and cash

equivalents (385,268,710) 733,776,102

Cash and cash equivalents at December 31 W 943,166,362,823 319,472,205,767

See accompanying notes to the separate financial statements.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

1. Description of the Company

Samsung Heavy Industries Co., Ltd. (referred to as the “Company”) was incorporated on August 5, 1974 under the Commercial Code of the Republic of Korea to shipbuilding contracts and offshore plants. The Company listed its shares on the Korea Exchange on January 28, 1994.

2. Significant Accounting Policies

2.1 Basis of Preparation

The separate financial statements of the Company have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audits of Corporations in the Republic of Korea. These are the standards, subsequent amendments and related interpretations issued by the International Accounting Standards Board (“IASB”) that have been adopted by the Republic of Korea.

The separate financial statements have been prepared on a historical cost basis, except for the following material items in the statement of financial position: - specific financial assets and financial liabilities (including derivatives), specific property, plant and equipment measured at fair value; and - liabilities for defined benefit plans and plan assets measured at fair value.

The preparation of the separate financial statements requires the use of critical accounting estimates. Management also needs to exercise judgement in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the separate financial statements are disclosed in Note 3.

2.2 Changes in Accounting Policies and Disclosures

2.2.1 New and amended standards and interpretations adopted by the Company

The Company has applied the following standards and interpretations for the first time for their annual reporting period commencing January 1, 2020.

(1) Amendments to K-IFRS No.1001 ‘Presentation of Financial Statements’ and K-IFRS No.1008 ‘Accounting policies, changes in accounting estimates and error’ – Definition of Materiality

The amendments clarify the explanation of the definition of materiality and amended K-IFRS No.1001 and K- IFRS No.1008 in accordance with the clarified definitions. Materiality is assessed by reference to omission or misstatement of material information as well as effects of immaterial information, and to the nature of the users when determining the information to be disclosed by the Company. The Company does not expect that these amendments have a significant impact on the separate financial statements.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.2 Changes in Accounting Policies and Disclosures, Continued

2.2.1 New and amended standards and interpretations adopted by the Company, Continued

(2) Amendments to K-IFRS No.1103 ‘Business Combination’ – Definition of a Business

The amended definition of a business requires an acquisition to include an input and a substantive process that together significantly contribute to the ability to create outputs and the definition of output excludes the returns in the form of lower costs and other economic benefits. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, an entity may elect to apply an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The Company does not expect that these amendments have a significant impact on the separate financial statements.

(3) Amendments to K-IFRS No.1109 'Financial Instruments’, K-IFRS No.1039 ‘Financial Instruments: Recognition and Measurement’ and K-IFRS No.1107 'Financial Instruments: Disclosures’ (Interest rate benchmark reform)

The amendments allow to apply the exceptions when forward-looking analysis is performed in relation the application of hedge accounting while uncertainties arising from interest rate benchmark reform exist. The exceptions require the Company assumes that the interest rate benchmark on which the hedged items and the hedging instruments are based on is not altered as a result of interest rate benchmark reform, when determining whether the expected cash flows are highly probable, whether an economic relationship between the hedged item and the hedging instrument exists, and when assessing the hedging relationship is highly effective. The Company does not expect that these amendments have a significant impact on the separate financial statements.

(4) Conceptual Framework for Financial Reporting (2018)

The conceptual framework is not a standard. Nothing in the conceptual framework overrides any standard or any requirement in a standard. The purpose of the conceptual framework is to assist the Korea Accounting Standards Board to develop K-IFRS that are based on consistent concepts, assist preparers to develop consistent accounting policies when no standards applies to a particular transaction or other event, or when a standard allows a choice of accounting policy. And it assists all parties to understand and interpret the standards.

The revised conceptual framework includes some new concepts, presents changes in the definitions and recognition criteria of assets and liabilities, and clarifies some important concepts. The Company does not expect that these amendments have a significant impact on the separate financial statements.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.2 Changes in Accounting Policies and Disclosures, Continued

2.2.2 New standards and interpretations not yet adopted by the Company

The new standards and interpretations that have been published but have not been mandatory for annual periods beginning after January 1, 2020 are as follows:

(1) Amendments to K-IFRS No.1116 ‘Leases’ – Practical expedient for COVID-19 Related Rent Exemption, Concessions, Suspension

As a practical expedient, a lessee may elect not to assess whether a rent concessions occurring as a direct consequent of the COVID-19 pandemic is a lease modification, and the amount recognized in profit or loss as a result of applying this exemption should be disclosed. The amendments are effective for periods beginning on or after June 1, 2020, with earlier application permitted. The Company does not expect that these amendments have a significant impact on the separate financial statements.

(2) Amendments to K-IFRS No.1109 ‘Financial Instruments’, K-IFRS No.1039 ‘Financial Instruments: Recognition and Measurement’, K-IFRS No.1107 ‘Financial Instruments: Disclosures’, K-IFRS No.1104 ‘Insurance contracts’ and K-IFRS No.1116 ‘Leases’ – Interest Rate Benchmark Reform-Phase 2

The amendments include exemptions that changes of interest rate indicators for financial instruments measured at amortised cost are accounted for by updating the effective interest rate, and that the hedge may be able to continue without interruption despite changes of interest rate indicators. The amendments are effective for periods beginning on or after January 1, 2021, with earlier application permitted. The Company does not expect that these amendments have a significant impact on the separate financial statements.

(3) Amendments to K-IFRS No.1103 'Business Combinations’ – References to Conceptual Framework

The amendments update a reference of definition of assets and liabilities qualify for recognition in revised Conceptual Framework for Financial Reporting. However, the amendments add an exception for the recognition of liabilities and contingent liabilities within the scope of K-IFRS No.1037 ‘Provisions, Contingent Liabilities and Contingent Assets’, and K-IFRS No.2121 ‘Levies’. The amendments also confirm that contingent assets should not be recognized at the acquisition date. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Company does not expect that these amendments have a significant impact on the separate financial statements.

(4) Amendments to K-IFRS No.1016 ‘Property, Plant and Equipment’ – Proceeds before Intended Use

The amendments prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while the entity is preparing the asset for its intended use. Instead, the entity will recognize the proceeds from selling such items, and the costs of producing those items, in profit or loss. The amendments are effective for periods beginning on or after 1 January 2022, with earlier application permitted. The Company does not expect that these amendments have a significant impact on the separate financial statements.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.2 Changes in Accounting Policies and Disclosures, Continued

2.2.2 New standards and interpretations not yet adopted by the Company, Continued

(5) Amendments to K-IFRS No.1037 ‘Provisions, Contingent Liabilities and Contingent Assets’ – Onerous Contracts: Cost of Fulfilling a Contract

The amendments clarify that the ‘costs of fulfilling a contract’ comprise both the incremental costs and an allocation of other direct costs when assessing whether a contract is onerous. The amendments are effective for periods beginning on or after January 1, 2022, with earlier application permitted. The Company does not expect that these amendments have a significant impact on the separate financial statements.

(6) Annual Improvements to K-IFRS Standards 2018–2020

Annual Improvements to K-IFRS Standards 2018–2020 are effective for periods beginning on or after January 1, 2022, with earlier application permitted. The Company does not expect that these amendments have a significant impact on the separate financial statements.

- K-IFRS No.1101 ‘First time Adoption of Korean International Financial Reporting Standards’ – Subsidiaries that are first-time adopters - K-IFRS No.1109 ‘Financial Instruments’ – Fees related to the 10% test for derecognition of financial liabilities - K-IFRS No.1116 ‘Leases’ – Lease incentives - K-IFRS No.1041 ‘Agriculture’ – Measuring fair value

(7) Amendments to K-IFRS No.1001 ‘Presentation of Financial Statements’ – Classification of Liabilities as Current or Non-current

The amendments clarify that liabilities are classified as either current or non-current, depending on the substantive rights that exist at the end of the reporting period. Classification is unaffected by the likelihood that an entity will exercise right to defer settlement of the liability or the expectations of management. Also, the settlement of liability includes the transfer of the entity’s own equity instruments, however, it would be excluded if an option to settle them by the entity’s own equity instruments if compound financial instruments is met the definition of equity instruments and recognized separately from the liability. The amendments should be applied for annual periods beginning on or after January 1, 2023, and earlier application is permitted. The Company is considering the impact of these amendments on the separate financial statements.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.3 Subsidiaries, Joint Ventures, and Associates

The financial statements of the Company are the separate financial statements prepared in accordance with K-IFRS No.1027 ‘Separate Financial Statements. Investments in subsidiaries, joint ventures and associates are recognized at cost under the direct equity method. Management applied the carrying amounts under the previous K-GAAP at the time of transition to K-IFRS as deemed cost of investments. The Company recognizes dividend income from subsidiaries, joint ventures and associates in profit or loss when its right to receive the dividend is established.

2.4 Operating Segment

Information of each operating segment is reported in a manner consistent with the internal business segment reporting provided to the chief operating decision-maker (Note 36). The chief operating decision- maker is responsible for allocating resources and assessing performance of the operating segments.

2.5 Foreign Currency Translation

(1) Functional and presentation currency

Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which each entity operates (the “functional currency"). The separate financial statements are presented in Korean won, which is the Company’s functional and presentation currency

(2) Transaction and balances

Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in profit or loss. They are recognized in other comprehensive income if they relate to qualifying cash flow hedges and qualifying effective portion of net investment hedges, or are attributable to monetary part of the net investment in a foreign operation.

Foreign exchange gains and losses that relate to borrowings are presented in the statement of profit or loss, within ‘finance costs’. All other foreign exchange gains and losses are presented in the statement of profit or loss within ‘other income (expenses)’.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equity instruments at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equity instruments at fair value through other comprehensive income are recognized in other comprehensive income.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.6 Financial Assets

(1) Classification

The Company classifies its financial assets in the following measurement categories: - financial assets measured at fair value through profit or loss (“FVTPL”); - financial assets measured at fair value through other comprehensive income (“FVOCI”); and - financial assets measured at amortized cost.

The classification depends on the Company’s business model for managing the financial assets and the contractual terms of the cash flows.

For financial assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in debt instruments, this will depend on the business model in which the investment is held. The Company reclassifies debt investments when, and only when its business model for managing those assets changes.

For investments in equity instruments that are not held for trading, this will depend on whether the Company has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income. Changes in fair value of investments in unelected equity instruments are recognized in profit or loss.

(2) Measurement

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.

Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.

(i) Debt instruments

Subsequent measurement of debt instruments depends on the Company’s business model for managing the asset and the cash flow characteristics of the asset. The Company classifies its debt instruments into one of the following three measurement categories:

(a) Amortized cost

Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. A gain or loss on a debt investment that is subsequently measured at amortized cost and is not part of a hedging relationship is recognized in profit or loss when the asset is derecognized or impaired. Interest income from these financial assets is included in ‘finance income’ using the effective interest rate method.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.6 Financial Assets, Continued

(b) Fair value through other comprehensive income

Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at fair value through other comprehensive income. Movements in the carrying amount are taken through other comprehensive income, except for the recognition of impairment loss (reversal of impairment loss), interest income and foreign exchange gains and losses which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss. Interest income from these financial assets is included in ‘finance income’ using the effective interest rate method. Foreign exchange gains and losses are presented in ‘other income (expenses)’ and impairment losses (reversal of impairment losses) are presented in ‘other expenses (income)’.

Assets that do not meet the criteria for amortized cost or fair value through other comprehensive income are measured at fair value through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognized in profit or loss and presented net in the statement of profit or loss within ‘other income (expenses)’ in the year in which it arises.

(ii) Equity instruments

The Company subsequently measures all equity investments at fair value. Where the Company’s management has elected to present fair value gains and losses on equity investments, which held for long- term investment or strategic purpose, in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividend income from such investments continue to be recognized in profit or loss as ‘other income’ when the right to receive payments is established.

Changes in the fair value of financial assets at fair value through profit or loss are recognized in ‘other income and expenses’ in the statement of profit or loss as applicable. Impairment loss (reversal of impairment loss) on equity investments measured at fair value through other comprehensive income are not reported separately from other changes in fair value.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.6 Financial Assets, Continued

(3) Impairment

(i) Financial instruments and Contract assets

The Company recognizes loss allowances for expected credit losses (“ECL”) on: - financial assets measured at amortized cost; - debt investments measured at FVOCI; and - contract assets defined in K-IFRS No.1115.

The Company measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs: - debt securities that are determined to have low credit risk at the reporting date; and - other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECLs.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment and including forward-looking information.

The Company considers a financial asset to be in default when: - the borrower is unlikely to pay its credit obligations to the Company in full, without recourse by the Company to actions such as realizing security (if any is held); or

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).

The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk.

(ii) Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive). ECLs are discounted at the effective interest rate of the financial asset.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.6 Financial Assets, Continued

(iii) Credit-impaired financial assets

At each reporting date, the Company assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired.

A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data: - significant financial difficulty of the borrower or issuer; - a breach of contract such as a default or being past due; - the restructuring of a loan or advance by the Company on terms that the Company would not consider otherwise; - it is probable that the borrower will enter bankruptcy or other financial reorganization; or - the disappearance of an active market for a security because of financial difficulties.

(iv) Presentation of allowance for ECL in the statement of financial position

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets.

(v) Write-off

The gross carrying amount of a financial asset is written off when the Company has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. The Company expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Company’s procedures for recovery of amounts due.

(4) Recognition and Derecognition

Regular way purchases and sales of financial assets are recognized or derecognized on trade-date, the date on which the Company commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.

If a transfer does not result in derecognition because the Company has retained substantially all the risks and rewards of ownership of the transferred asset, the Company continues to recognize the transferred asset in its entirety and recognizes a financial liability for the consideration received. The Company classified the financial liability as “borrowings” in the statement of financial position.

(5) Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the separate statement of financial position where there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the assets and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.7 Derivative Instruments

Derivatives are initially recognized at fair value on the date when a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of the derivatives that are not qualified for hedge accounting are recognized in the statement of income within 'finance income (costs)' according to the nature of transactions.

The Company applies hedge accounting for firm commitments and highly probable forecasted transactions.

The Company documents the economic relationship between hedging instruments and hedged items, as well as its expectation of whether hedging instruments offset changes in fair values or cash flows of hedged items.

Hedges directly affected by interest rate benchmark reform.

For the purpose of evaluating whether there is an economic relationship between the hedged item(s) and the hedging instrument(s), the Company assumes that the benchmark interest rate is not altered as a result of interest rate benchmark reform.

For a cash flow hedge of a forecast transaction, the Company assumes that the benchmark interest rate will not be altered as a result of interest rate benchmark reform for the purpose of assessing whether the forecast transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect profit or loss. In determining whether a previously designated forecast transaction in a discontinued cash flow hedge is still expected to occur, the Company assumes that the interest rate benchmark cash flows designated as a hedge will not be altered as a result of interest rate benchmark reform.

The Company will cease to apply the specific policy for assessing the economic relationship between the hedged item and the hedging instrument - to a hedged item or hedging instrument when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the interest rate benchmark-based cash flows of the respective item or instrument or - when the hedging relationship is discontinued.

For its highly probable assessment of the hedged item, the Company will no longer apply the specific policy when the uncertainty arising from interest rate benchmark reform about the timing and the amount of the interest rate benchmark-based future cash flows of the hedged item is no longer present, or when the hedging relationship is discontinued.

The fair values of various derivative instruments used for hedging purposes are disclosed in Note 9. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. The fair value of trading derivatives is classified as a non-current asset or liability when the remaining maturity is more than 12 months and as a current asset or liability when the remaining maturity is less than 12 months.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.7 Derivative Instruments, Continued

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the statement of income, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The Company applies fair value hedge accounting for hedging exchange risk of firm commitments. The gain or loss relating to the effective portion of derivative instruments hedging exchange risk of a firm commitment is recognized in the statement of income within ‘other income (expenses)’. The gain or loss relating to the ineffective portion is recognized in the statement of income within ‘finance income (costs)’. Changes in the fair value of the firm commitments attributable to exchange risk are recognized in the statement of income within ‘other income (expenses)’.

When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the years during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss. Also, if the risk management objectives which continue the hedge relationships designated before change although the Company’s risk management strategy is the same, the Company discontinues previous hedge accounting and applies hedge accounting according to the new risk management objectives prospectively.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.8 Inventories

Inventories are stated at the lower of cost and net realizable value. Raw materials for shipbuilding & offshore plants business are determined using individual method and moving weighted average method and individual method is applied for evaluating inventory of construction completed and materials in transit.

2.9 Property, Plant and Equipment

Land is shown at fair value based on valuations by external independent valuers. Valuations are performed with sufficient regularity to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.

All other property, plant and equipment except land are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditures that is directly attributable to the acquisition of the items.

Increases in the carrying amount arising on revaluation of land and buildings are credited to other comprehensive income and shown as other reserves in equity. Decreases that offset previous increases of the same asset are charged to other comprehensive income and debited against other reserves directly in equity; all other decreases are charged to the statement of profit or loss.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate the difference between their cost and their residual values over their estimated useful lives, as follows:

Estimated useful lives Buildings 25 - 50 years Structures 25 - 50 years Machinery 10 - 30 years Vehicles 5 - 30 years Tools, furniture and fixtures 5 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is adjusted to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

When revalued assets are sold, the amounts included in revaluation reserves are transferred to retained earnings.

2.10 Borrowing Costs

General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized during the period of time that is required to complete and prepare the asset for its intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. Other borrowing costs are expensed in the period in which they are incurred.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.11 Government Grants

Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions. Government grants related to assets are presented in the statement of financial position by deducting the grant in arriving at the carrying amount of the asset, and government grants related to income are deferred and later deducted from the related expense.

2.12 Intangible Assets

Intangible assets are initially recognized at its historical cost, and carried at cost less accumulated amortization and accumulated impairment losses.

Other intangible assets such as software which meet the definition of an intangible asset are amortized using the straight-line method over their estimated useful lives when the asset is available for use. Membership rights that have an indefinite useful life are not subject to amortization because there is no foreseeable limit to the period over which the assets are expected to be utilized.

The Company amortizes intangible assets with a limited useful life using the straight-line method over the following periods:

Estimated useful lives Other intangible assets 5 years

Useful lives and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.

(1) Research and development

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

(2) Subsequent expenditures

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.13 Investment Property

Investment properties are property held to earn rentals or for capital appreciation or both. Investment properties are measured initially at its cost and transaction costs are included in the initial measurement. After initial recognition, the book value of investment properties is presented at the cost less accumulated depreciation and accumulated impairment losses.

Subsequent costs are recognized as the carrying amount of the asset when, and only when it is probable that future economic benefits associated with the asset will flow to the Company, and the cost of the asset can be measured reliably, or recognized as a separate asset if appropriate. The carrying amount of what was replaced is derecognized.

Land is not depreciated, and other investment properties are depreciated using the straight-line method over the period from 50 years. The Company reviews the depreciation method, the estimated useful lives and residual values at the end of each annual reporting period. If expectations differ from previous estimates, the changes are accounted for as a change in accounting estimate.

2.14 Impairment of Non-financial assets

The carrying amounts of the Company’s non-financial assets, other than assets arising from contract assets recognized from revenue from customers, employee benefits, inventories, deferred tax assets and non- current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets ("CGUs"). The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflect current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

An impairment loss is recognized in profit or loss if the carrying amount of an asset or a CGU exceeds its recoverable amount.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill acquired. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.15 Trade and Other Payables

These amounts represent liabilities for goods and services provided to the Company prior to the end of reporting period which are unpaid. Trade and other payables are presented as current liabilities, unless payment is not due within 12 months after the reporting period. They are recognized initially at their fair value and subsequently measured at amortized cost using the effective interest method.

2.16 Financial Liabilities

(1) Classification and measurement

The Company’s financial liabilities at fair value through profit or loss are financial instruments held for trading. A financial liability is held for trading if it is incurred principally for the purpose of repurchasing in the near term. A derivative that is not a designated as hedging instruments and an embedded derivative that is separated are also classified as held for trading.

The Company classifies non-derivative financial liabilities, except for financial liabilities at fair value through profit or loss, financial guarantee contracts and financial liabilities that arise when a transfer of financial assets does not qualify for derecognition, as financial liabilities carried at amortized cost and present as ‘trade payables’, ‘borrowings’, and ‘other financial liabilities’ in the statement of financial position.

Preferred shares that require mandatory redemption at a particular date are classified as liabilities. Interest expenses on these preferred shares using the effective interest method are recognized in the statement of profit or loss as ‘finance costs’, together with interest expenses recognized from other financial liabilities.

(2) Derecognition

Financial liabilities are removed from the statement of financial position when it is extinguished; for example, when the obligation specified in the contract is discharged or cancelled or expired or when the terms of an existing financial liability are substantially modified. The difference between the carrying amount of a financial liability extinguished or transferred to another party and the consideration paid (including any non- cash assets transferred or liabilities assumed) is recognized in profit or loss.

2.17 Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement is recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement is presented as a separate asset.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.17 Provisions, Continued

(1) Provision for construction warranty

The Company has accrued warranty provision for the estimated costs of future repair, based on historical experience and terms of guarantees.

(2) Provision for construction losses

A provision for onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it and it measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract, which is determined based on incremental costs necessary to fulfil the obligation under the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract.

Provisions are used only for the expenditures related to the initial recognition.

2.18 Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

The Company has determined whether interest and penalties related to income taxes meet the definition of income taxes or not, and accounted for them under K-IFRS No. 1012 ‘Income Taxes’ if they meet the definition of income taxes, otherwise under K-IFRS No. 1037 ‘Provisions, Contingent Liabilities and Contingent Assets’.

(1) Current tax

Current tax is the expected tax payable or receivable on the taxable income or loss for the year. Since taxable income excludes income which will be added or deductible in other taxation periods, non-taxable items or non-deductible items from net income on comprehensive income statements, the taxable income and net income on comprehensive income statements differ. Tax payable related to current tax is calculated by using tax rates enacted or substantively enacted.

Current tax assets and current tax liabilities can be offset only if the Company:

- has the legally enforceable right to set off the recognized amounts; and - intends either to settle on a net basis or realize the assets and settle the liabilities simultaneously.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.18 Income tax, Continued

(2) Deferred tax

The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manners in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

The Company recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Company recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used.

Future taxable profits are determined based on the reversal of relevant taxable temporary differences. If the amount of taxable temporary differences is insufficient to recognise a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries in the Company.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax assets to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.19 Employee benefits

(1) Post-employment benefits

The Company operates both defined contribution and defined benefit pension plans.

For defined contribution plans, the Company pays contribution to publicly or privately administered pension insurance plans on mandatory, contractual or voluntary basis. The Company has no further payment obligation once the contributions have been paid. The contributions are recognized as employee benefit expense when they are due.

A defined benefit plan is a pension plan that is not a defined contribution plan. Generally, post-employment benefits are payable after the completion of employment, and the benefit amount depended on the employee’s age, periods of service or salary levels. The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms approximating to the terms of the related obligation. Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in the period in which they occur, directly in other comprehensive income.

Changes in the present value of the defined benefit obligation resulting from plan amendments or curtailments are recognized immediately in profit or loss as past service costs.

(2) Shared-based payments

Equity-settled share-based payment is recognized at fair value of equity instruments granted, and employee benefit expense is recognized over the vesting period. At the end of each period, the Company revises its estimates of the number of options that are expected to vest based on the non-market vesting and service conditions. It recognizes the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity.

When the options are exercised, the Company issues new shares. The proceeds received, net of any directly attributable transaction costs, are recognized as share capital (nominal value) and share premium.

(3) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Company during an accounting period, the Company recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service as gain or loss.

(4) Other long-term employee benefits

Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render the related service. The Company’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Remeasurements are recognized in profit or loss in the period in which they arise. 29

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.19 Employee benefits, Continued

(5) Termination benefits

Termination benefits are expensed at the earlier of when the Company can no longer withdraw the offer of those benefits and when the Company recognizes costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the end of the reporting period, then they are discounted.

2.20 Revenue Recognition

(1) Contracts using Cost-based Input Method

(i) A performance obligation is satisfied over time

The Company operates manufacturing and selling of ships, offshore plants, and others and comprehensive construction business, it generally takes over one-year to build. The Company recognizes revenue in accordance with the percentage of completion of the contract activity calculated based on input costs. The percentage of completion of the contract activity is the proportion that aggregated costs incurred to date, excluding any contract cost that does not depict the Company’s performance, bear to the estimated total costs of the contract. However, the Company recognizes revenue only to the extent of the costs incurred until such time that it can reasonably measure the outcome of the performance obligation if the Company cannot reasonably measure its progress towards complete satisfaction of the performance obligation.

The revenue is recognized over time by measuring progress only if the Company’s performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date. Based on the analysis on contract terms and conditions, the Company recognizes revenue over time on the basis that the Company’s performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date.

(ii) Variable consideration

The Company estimates an amount of variable consideration by using the expected value which the Company expects to better predict the amount of consideration. The Company recognize revenue with transaction price including variable consideration only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

(iii) Presentation of contract assets and contract liabilities

The Company presents the contracts in the statement of financial position as contract assets or contract liabilities, depending on the relationship between the Company’s performance and the customer’s payment. Any unconditional rights to consideration are recognized as trade receivables separately from contract assets.

If a customer pays consideration, or the Company has a right to an amount of consideration that is unconditional (trade receivables), before the Company transfers a good or service to the customer, the Company presents the contract as a contract liability when the payment is made or the payment is due (whichever is earlier). A contract liability is the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.20 Revenue Recognition, Continued

(1) Contracts using Cost-based Input Method, continued

(iii) Presentation of contract assets and contract liabilities, continued

If the Company performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, the Company presents the contract as a contract asset, excluding any amounts presented as trade receivables. A contract asset is the Company’s right to consideration in exchange for goods or services that the Company has transferred to a customer.

(2) Sales of goods

Sales are recognized when control of the products has transferred, being when the products are delivered to the customer.

2.21 Leases

(1) As a lessor

At inception or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

When the Company acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operation lease. To classify each lease, the Company makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Company considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

When the Company is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Company applies the exemption described above, then it classifies the sub-lease as an operating lease.

If an arrangement contains lease and non-lease components, then the Company applies K-IFRS No. 1115 to allocate the consideration in the contract.

The Company applies the derecognition and impairment requirements in K-IFRS No. 1109 to the net investment in the lease. The Company further regularly reviews estimated unguaranteed residual values used in calculating the gross investment of the lease.

The Company recognises lease payments received under operating leases as income on a straight-line basis over the lease term. Generally, the accounting policies applicable to the Company as a lessor in the comparative period were not different from K-IFRS No. 1116.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.21 Leases, Continued

(2) As a lessee

The Company leases various lands, buildings, machinery, vehicles and equipment. Lease contracts are typically made for fixed periods but may have extension options or termination options as described in below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets cannot be used as security for borrowing purposes.

The Company determines the lease term as the non-cancellable period of a lease, together with both (a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and (b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. When the lessee and the lessor each has the right to terminate the lease without permission from the other party, the Company has considered a termination penalty in determining the period for which the contract is enforceable.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: - fixed payments, including in substance fixed payments; - variable lease payments that depend on an index or a rate; - amounts expected to be payable under a residual value guarantee; and - the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.

The Company is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.

Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Right-of-use assets are measured at cost comprising the following: - the amount of the initial measurement of lease liability - any lease payments made at or before the commencement date less any lease incentives received - any initial direct costs paid by lessee, and - restoration costs

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.21 Leases, Continued

(2) As a lessee, continued

The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Company is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life. Although the Company elected to apply the revaluation model to its land and buildings that are presented in property, plant and equipment, the Company elected not to apply that revaluation model to buildings held by the Company that are presented in the right- of-use assets.

Payments associated with leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss. Low-value assets comprise small items of office furniture.

Extension and termination options Extension and termination options are included in a number of property and equipment leases across the Company. These terms are used to maximize operational flexibility in terms of managing contracts. The majority of extension and termination options held are exercisable only by the Company and not by the respective lessor.

2.22 Cash and Cash Equivalents

Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value and are used by the Company in the management of its short-term commitments. Equity investments are excluded from cash equivalents unless they are, in substance, cash equivalents, for example in the case of preferred shares when it has a short maturity with a specified redemption date.

2.23 Earnings per Share

The Company presents basic and diluted earnings per share (EPS) data for its common stocks. Basic EPS is calculated by dividing the profit or loss attributable to common stockholders of the Company by the weighted average number of common stocks outstanding during the period, adjusted for own shares held. Diluted earnings per share are calculated by adjusting profit or loss and weighted average ordinary shares attributable to ordinary shares in consideration of the effects of preferred shares.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

2. Significant Accounting Policies, Continued

2.24 Emissions rights

The Company accounts for greenhouse gases emission right and the relevant liability as below pursuant to the Act on Allocation and Trading of Greenhouse Gas Emission.

(1) Greenhouse Gases Emission right

Greenhouse Gases Emission right consists of emission allowances which are allocated from the government free of charge or purchased from the market. The cost includes any directly attributable costs incurred during the normal course of business.

Emission rights held for the purpose of performing the obligation are classified as intangible asset and are initially measured at cost and after initial recognition, are carried at cost less accumulated impairment losses. Emission rights held for short-swing profits are classified as current asset and are measured at fair value with any changes in fair value recognized as profit or loss in the respective reporting period.

The Company derecognizes an emission right asset when the emission allowance is unusable, disposed or submitted to government in which the future economic benefits are no longer expected to be probable.

(2) Emission liability

Emission liability is a present obligation of submitting emission rights to the government with regard to emission of greenhouse gas. Emission liability is recognized when it is probable that outflows of resources will be required to settle the obligation and the costs required to perform the obligation are reliably estimable. Emission liability is an amount of estimated obligations for emission rights to be submitted to the government for the performing period. The emission liability is measured based on the expected quantity of emission for the performing period in excess of emission allowance in possession and the unit price for such emission rights in the market at the end of the reporting period. Emissions liability is removed when the emission rights are submitted to the government.

2.25 Approval of Issuance of the Separate Financial Statements

The separate financial statements 2020 were initially and amended approved for issue by the Board of Directors on February 24, 2021 and March 9, 2021 and will be submitted for approval to the stockholder’s meeting to be held on March 19, 2021.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

3. Critical Accounting Estimates and Assumptions

The preparation of separate financial statements requires the Company to make estimates and assumptions concerning the future. Management also needs to exercise judgement in applying the Company’s accounting policies. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. As the resulting accounting estimates will, by definition, seldom equal the related actual results, it can contain a significant risk of causing a material adjustment.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Additional information of significant judgement and assumptions of certain items are included in relevant notes.

During 2020, the spread of Coronavirus disease 2019 (“COVID-19”) has a material impact on the global economy. It may have a negative impact such as, decrease in productivity, decrease or delay in sales, collection of existing receivables and others. Accordingly, it may have a negative impact on the financial position and financial performance of the Company.

Critical accounting estimates and assumptions applied in the preparation of the separate financial statements can be adjusted depending on changes in the uncertainty from COVID-19. Also, the ultimate effect of COVID-19 to the Company’s business, financial position and financial performance can be differ from estimates reflected in separate financial statements.

(1) Uncertainty of the estimated total contract revenue

Total contract revenue is measured based on contract amount initially agreed. However, the measurement of contract revenue is affected by a variety of uncertainties that depend on the outcome of future event; for example, the amount of contract revenue may increase as a result of variations in contract work, claims and incentive payments, on the other hand, the amount of contract revenue may decrease as a result of penalties arising from delays caused by the Company in the completion of the contract. Therefore, this measurement of contract revenue is affected by the uncertainty of the occurrence of future events. The change in contract revenue is recognized when it is probable that the customer will approve the increase in revenue due to the variations in contract work, or when it is probable that the Company will be able to satisfy the performance requirements, and the amount can be estimated reliably.

The contract revenue can be decreased by the claims of liquidated damages when the completion of contract is delayed due to the Company’s fault. Therefore, the damage claims for the delay are estimated based on historical experience in case the completion date is expected to be delayed. As of December 31, 2020, the maximum amount of damage claims from the delay as the Company was not able to meet the contracted completion date is expected to W9,204 million. The W9,204 million of this amount is the best estimate of the damage claim the Company is likely to bear due to its fault and has been deducted from the contract revenue for the year ended December 31, 2020. The amount will be periodically revalued until the completion date. The Company is constantly putting an effort to minimize damage claims by requesting an extension of the completion date from the customer and to undertake measures in order to comply with the completion date.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

3. Critical Accounting Estimates and Assumptions, Continued

(2) Estimated total contract costs

Construction revenue is recognized according to the percentage of completion, which is measured on the basis of the gross amount incurred to date. Total contract costs are estimated based on future estimates of material costs, labor costs, construction period and others. When the estimated total contract costs increase by 5%, profit before income tax and net assets before income tax effects decrease by W1,474,040 million.

(3) Uncertainty of the estimated impairment of contract asset

The Company assesses at the end of each reporting period whether there is an objective evidence that a contract asset is impaired. Disputes with the buyer, litigation or bankruptcy of the buyer are objective evidence that the contract asset is impaired because it significantly reduces collectability of the contract asset.

After the assessment, the Company recognizes impairment losses only if there is an objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the asset that can be reliably estimated.

As of December 31, 2020, uncertainties in collectability of contract assets have been increased because of contract termination that is caused by customers’ financial difficulties, delay in delivery schedule and others.

(4) Deferred tax assets

The Company recognizes a deferred tax, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized. The Company estimates taxable profit by reflecting the impact of uncertainty on the basis of its future business plans.

(5) Fair value of financial instruments

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Company uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period (Note 9).

(6) Impairment of financial assets

The provision for impairment for financial assets is based on assumptions about risk of default and expected loss rates. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation based on the Company’s experience, existing market conditions as well as forward looking estimates at the end of each reporting period.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

3. Critical Accounting Estimates and Assumptions, Continued

(7) Provision for warranty

The Company has accrued warranty provision for the estimated costs of future repair, based on historical experience and terms of guarantees. The warranty provision is offset when costs related to repair incurred, and the remaining balances are reversed upon termination of the terms of guarantees. Repairing costs in excess of the corresponding provision are recognized in profit of loss in the period in which they are incurred (Note 6).

(8) Net defined benefit liability and Other long-term employee benefits

The present value of net defined benefit liability and other long-term employee benefits depends on a number of factors that are determined on an actuarial basis using a number of assumptions including the discount rate (Note 22).

(9) Provisions

As of December 31, 2020, the Company recognizes provisions for litigations and others, and these provisions are estimated based on experience (Note 23).

(10) Impairment of non-financial assets

The Company is conducting an impairment assessment on all non-financial assets if there are signs of impairment. The recoverable amount for impairment assessment is determined based on the calculation of value in use or fair value less costs of disposal. To calculate value in use, management chooses an appropriate discount rate to estimate future cash flows arising from the individual asset or cash-generating unit and to calculate the present value of the cash flows in the future.

4. Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 2020 and 2019 are as follows:

(In thousands of won) December 31, 2020 December 31, 2019

Cash W 101,194 113,431 Ordinary deposits 913,218,110 3,512,457 Current deposits 1,271 92 Others 29,845,788 315,846,226 W 943,166,363 319,472,206

5. Restricted Financial Instruments

As of December 31, 2020, W25 million of long-term financial instruments are restricted to maintain checking accounts (Note 13). W442,608 million of in short-term financial instruments are subject to withdrawal restrictions as collaterals and others for borrowings (Note 21).

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

6. Contract using Cost-based Input Method

(1) Changes in contract balances and recognized construction revenue for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 Recognized Beginning construction Ending balance Changes revenue balance

Shipbuilding & offshore W 14,130,133,762 4,559,542,565 6,718,035,992 11,971,640,335 E & I (Energy & Infra solution) 35,784,816 2,230,321 19,271,377 18,743,760 W 14,165,918,578 4,561,772,886 6,737,307,369 11,990,384,095

(In thousands of won) 2019 Recognized Beginning construction Ending balance Changes revenue balance

Shipbuilding & offshore W 12,164,643,730 9,000,520,006 7,035,029,974 14,130,133,762 E & I 53,579,762 5,798,146 23,593,092 35,784,816 W 12,218,223,492 9,006,318,152 7,058,623,066 14,165,918,578

(2) As of December 31, 2020, the Company is provided with performance guarantees and warranties of W821,946 million for the shipbuilding & offshore contracts from several financial institutions, including Korea Exim Bank. The Company is provided with performance guarantees and warranties of W360,636 million in relation to the E & I construction and others from several financial institutions including Construction Guarantee.

(3) The following table presents the accumulative construction cost associated with ongoing construction (including completion works during the reporting period) as of 31 December 31, 2020 and 2019 as follows:

(In thousands of won) December 31, 2020 Accumulative Accumulative construction construction Contract Contract cost profit or loss assets liabilities

Shipbuilding & offshore W 30,655,788,828 (443,490,211) 2,207,248,195 1,062,091,892 E & I 254,571,642 34,264,292 - - W 30,910,360,470 (409,225,919) 2,207,248,195 1,062,091,892

(In thousands of won) December 31, 2019 Accumulative Accumulative construction construction Contract Contract cost profit or loss assets liabilities

Shipbuilding & offshore W 29,325,167,795 (641,376,253) 2,563,269,383 1,499,497,204 E & I 265,397,644 21,541,813 - 2,634,896 W 29,590,565,439 (619,834,440) 2,563,269,383 1,502,132,100

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

6. Contract using Cost-based Input Method, Continued

(4) Due to the factors causing the rise in shipbuilding & offshore and energy & infra solution costs in 2020, the estimated total revenue and estimated total costs for contracts in progress have changed. Details of changes in estimated total contract revenue, estimated total contract costs, profits or loss for the period and the succeeding period, and the impact on contract assets (contract liabilities) are as follows:

(In thousands of won) 2020 Impact on Changes in Changes in Impact on profit or loss estimated estimated profit or loss for the Changes in total contract total contract for the succeeding contract assets revenue costs period period (*)

Shipbuilding & offshore W 268,809,214 530,436,000 (158,546,967) (103,079,819) (158,546,967) E & I 2,230,320 2,230,320 (177,884) 177,884 (177,884) W 271,039,534 532,666,320 (158,724,851) (102,901,935) (158,724,851)

(In thousands of won) 2019 Impact on Changes in Changes in Impact on profit or loss estimated estimated profit or loss for the Changes in total contract total contract for the succeeding contract assets revenue costs period period (*)

Shipbuilding & offshore W 333,012,391 429,253,320 (195,014,128) 98,773,199 (195,014,128) E & I 4,055,818 (4,163,784) 8,195,521 24,081 8,195,521 W 337,068,209 425,089,536 (186,818,607) 98,797,280 (186,818,607)

(*) Changes in contract liabilities and provision for construction losses are included.

The impact on profit or loss for the period and the succeeding period is determined based on total contract costs, which are estimated based on the circumstances present from the start of the contract to the end of year, and the estimated contract revenue as of December 31, 2020 and 2019. Contract costs and contract revenue may change in the future.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

6. Contract using Cost-based Input Method, Continued

(5) Contractual information that contract revenue for the years ended December 31, 2020 and 2019 is more than 5% of previous revenues, are as follows:

(In thousands of won) 2020 Contract assets Trade receivables Allowance Allowance Ordering Construction Percentage of for doubtful for doubtful location Contract date due date completion Amount accounts Amount accounts

FSRU(SN2255) Asia October 12, 2018 December 31, 2020 100% W - - - - CPF(SN7108) Australia February 10, 2012 August 26, 2018 99% 124,954,827 (63,221,699) - - Jackup Rig(SN7117) Europe June 11, 2013 December 31, 2016 99% - - - - Jackup Rig(SN7118) Europe June 11, 2013 April 30, 2017 99% - - - - FLNG(SN2030) Oceania May 30, 2011 April 4, 2018 99% - - - - FPSO(SN2089) Africa June 12, 2013 October 26, 2017 99% 116,853,124 (542,514) - - FLNG(SN2126) Asia February 14, 2014 November 15, 2020 99% - - - - FPU(SN2217) America January 4, 2017 January 12, 2021 95% 13,709,554 (63,650) 16,110,734 (74,797) FLNG(SN2235) Africa June 1, 2017 February 28, 2023 75% - - - - Platform(SN7115) Europe December 20, 2012 March 19, 2018 99% - - - - Semi-Rig(SN2097) Europe January 27, 2018 December 31, 2018 99% 46,507,249 (2,589,756) - - FPSO(SN2333) Asia April 22, 2019 October 14, 2022 23% - - - - LNG(SN2366) Eurasia November 22, 2019 February 28, 2023 16% - - - - LNG(SN2371) Eurasia November 22, 2019 September 30, 2023 1% - - - - LNG(SN2372) Eurasia November 22, 2019 October 31, 2023 0% - - - - LNG(SN2373) Eurasia November 22, 2019 November 30, 2023 0% - - - - W 302,024,754 (66,417,619) 16,110,734 (74,797)

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

6. Contract using Cost-based Input Method, Continued

(5) Contractual information that contract revenue for the years ended December 31, 2020 and 2019 is more than 5% of previous revenues, are as follows, continued:

(In thousands of won) 2019 Contract assets Trade receivables Allowance for Allowance Ordering Construction Percentage of doubtful for doubtful location Contract date due date completion Amount accounts Amount accounts

Drillship(SN2109)(*) - - - - W - - - - Drillship(SN2119)(*) ------FSRU(SN2220) Europe January 17, 2017 August 27, 2019 100% - - - - FSRU(SN2255) Asia October 12, 2018 December 31, 2020 63% 33,850,890 - - - CPF(SN7108) Australia February 10, 2012 August 26, 2018 99% 130,714,596 (67,277,650) - - Jackup Rig(SN7117) Europe June 11, 2013 December 31, 2016 99% - - - - Jackup Rig(SN7118) Europe June 11, 2013 April 30, 2017 99% - - - - FLNG(SN2030) Oceania May 30, 2011 April 4, 2018 99% 2,329,690 - - - FPSO(SN2089) Africa June 12, 2013 October 26, 2017 99% 135,098,430 - - - FLNG(SN2126) Asia February 14, 2014 November 15, 2020 95% - - - - Platform(SN2191) Europe June 29, 2015 February 28, 2019 100% - - - - FPU(SN2217) America January 4, 2017 August 31, 2020 81% - - 122,730,953 - FLNG(SN2235) Africa June 1, 2017 February 28, 2023 47% - - - - Platform(SN7115) Europe December 20, 2012 March 19, 2018 99% - - - - Semi-Rig(SN2097) Europe January 27, 2018 December 31, 2018 99% 49,432,889 - - - FPSO(SN2333) Asia April 22, 2019 October 14, 2022 3% - - - - W 351,426,495 (67,277,650) 122,730,953 -

(*) On September 24, 2019, the Company received a notice of intention of cancellation of the contract due to customer’s situation. On October 29, 2019, the shipbuilding contract was terminated after the related compensation agreement was made with the customer. Accordingly, the advance from customers was confiscated and the Company acquired ownership of the ship. In addition, related contract assets were reclassified to inventories.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

6. Contract using Cost-based Input Method, Continued

(6) Changes in provision for construction loss for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 Beginning balance Changes Ending balance Shipbuilding & offshore W 115,599,428 3,450,188 119,049,616

(In thousands of won) 2019 Beginning balance Changes Ending balance Shipbuilding & offshore W 176,686,520 (61,087,092) 115,599,428 E & I 212,575 (212,575) - W 176,899,095 (61,299,667) 115,599,428

(7) Changes in provision for warranty that have not expired the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 Beginning balance Changes Ending balance Shipbuilding & offshore W 325,697,477 2,131,275 327,828,752 E & I 6,201,080 (126,435) 6,074,645 W 331,898,557 2,004,840 333,903,397

(In thousands of won) 2019 Beginning balance Changes Ending balance Shipbuilding & offshore W 314,575,468 11,122,009 325,697,477 E & I 6,444,179 (243,099) 6,201,080 W 321,019,647 10,878,910 331,898,557

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

7. Contract Assets and Liabilities

(1) Contract assets and liabilities recognized by the Company as of December 31, 2020 and 2019, are as follows

(In thousands of won) December 31, 2020 December 31, 2019

Contract assets – contracts using cost-based input method W 2,207,248,195 2,563,269,383 Contract liabilities – contracts using cost-based input method 1,692,668,154 1,502,132,100 Contract liabilities – others 23,534,206 49,672,807 W 1,716,202,360 1,551,804,907

(2) Significant changes in contract assets and liabilities

Contract assets have been reduced as the price of the contract has been fixed before the payment date and the performance obligation has been fulfilled before the payment date. In addition, the Company recognized an allowance for doubtful accounts for contract assets in accordance with K-IFRS No.1109 (Note 10). Contract liabilities have been increased by deposit such as advance payment according to the contract for applying the cost-based input method.

(3) Revenue recognized in relation to contract liabilities

The following table shows how much of the revenue recognized in the current reporting period relates to carried- forward contract liabilities and no amount is related to performance obligations that were satisfied in a prior year.

(In thousands of won) 2020 2019

Revenue recognized that was included in the contract liability balance at the beginning of the period: Contract liabilities – contracts using cost-based input method W 1,353,458,526 2,102,645,229 Contract liabilities – others 37,394,551 10,061,795 W 1,390,853,077 2,112,707,024

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

8. Financial Instruments by Category

(1) Categorizations of financial instruments as of December 31, 2020 and 2019, are as follows:

(In thousands of won) December 31, 2020 Financial Financial assets assets Derivative Financial measured measured at instruments assets at FVTPL amortized for hedging measured at (*) cost (*) purpose FVOCI Total Financial assets Cash and cash equivalents W - 943,166,363 - - 943,166,363 Short-term financial instruments - 492,662,340 - - 492,662,340 Financial assets measured at FVTPL 12,839,859 - - - 12,839,859 Trade receivables - 258,947,494 - - 258,947,494 Derivative financial instruments 6,929,151 - 360,336,298 - 367,265,449 Non-current trade receivables - 13,516,847 - - 13,516,847 Financial assets measured at FVOCI - - - 25,981,110 25,981,110 Other financial assets and others - 116,525,217 - - 116,525,217 W 19,769,010 1,824,818,261 360,336,298 25,981,110 2,230,904,679

(*) Financial assets measured at FVTPL of W12,145 million and other current financial assets of W59,000 million are provided as collaterals for borrowings from Construction Guarantee and Industrial Bank of Korea (Note 13,14).

(In thousands of won) December 31, 2020 Financial Financial Derivative liabilities liabilities instruments measured at measured at for hedging FVTPL amortized cost purpose Total Financial liabilities Trade payables W - 418,643,062 - 418,643,062 Borrowings - 2,910,610,232 - 2,910,610,232 Current portion of long-term debts - 1,574,340,240 - 1,574,340,240 Debentures - 208,668,832 - 208,668,832 Derivative financial instruments 36,576,300 - 220,830,292 257,406,592 Other financial liabilities and others - 292,802,278 - 292,802,278 W 36,576,300 5,405,064,644 220,830,292 5,662,471,236

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

8. Financial Instruments by Category, Continued

(1) Categorizations of financial instruments as of December 31, 2020 and 2019, are as follows, continued:

(In thousands of won) December 31, 2019 Financial Financial assets assets Derivative Financial measured measured at instruments assets at FVTPL amortized for hedging measured at (*) cost (*) purpose FVOCI Total Financial assets Cash and cash equivalents W - 319,472,206 - - 319,472,206 Short-term financial - 446,348,343 446,348,343 instruments - - Financial assets measured 12,836,464 - 12,836,464 at FVTPL - - Trade receivables - 176,413,105 - - 176,413,105 Derivative financial 33,789,313 - 200,566,263 instruments 166,776,950 - Non-current trade - 16,891,144 16,891,144 receivables - - Financial assets measured - - 16,158,580 at FVOCI - 16,158,580 Other financial assets and - 146,550,036 146,550,036 others - - W 46,625,777 1,105,674,834 166,776,950 16,158,580 1,335,236,141

(*) Financial assets measured at FVTPL of W11,954 million and other current financial assets of W59,000 million are provided as collaterals for borrowings from Construction Guarantee and Industrial Bank of Korea (Note 13,14).

(In thousands of won) December 31, 2019 Financial Financial Derivative liabilities liabilities instruments measured at measured at for hedging FVTPL amortized cost purpose Total Financial liabilities Trade payables W - 644,475,708 - 644,475,708 Borrowings - 2,066,728,163 - 2,066,728,163 Current portion of long-term debts - 1,332,104,782 - 1,332,104,782 Debentures - 269,736,576 - 269,736,576 Derivative financial instruments 34,197,826 - 574,013,100 608,210,926 Other financial liabilities and others - 312,490,932 - 312,490,932 W 34,197,826 4,625,536,161 574,013,100 5,233,747,087

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

8. Financial Instruments by Category, Continued

(2) Net gains or net losses on each category of financial instruments for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 2019

Financial assets measured at FVTPL: Gain on valuation W 6,498,465 33,370,748 Dividend income 160,020 168,021 Gain on transaction 72,330,143 139,709,703 Derivative assets for hedging purpose: Gain on valuation (profit or loss) 311,906,425 212,764,960 Gain (loss) on valuation (other comprehensive income) 11,359,749 (52,612,542) Gain on transaction 168,256,554 308,479,406 Financial assets measured at FVOCI: Gain on valuation (other comprehensive income) 9,822,530 2,808,619 Dividend income - 199,306 Gain on disposal (reclassification) - 4,069,207 Financial assets measured at amortized cost: Gain (loss) on foreign currency translation (27,064,999) 883,595 Interest income 20,072,947 41,138,811 Bad debts expense (reversal of allowance for bad debts) (6,882,889) (717,124) Financial liabilities measured at FVTPL: Loss on valuation (36,440,796) (33,964,485) Loss on transaction (123,815,880) (186,240,754) Derivative liabilities for hedging purpose: Gain (loss) on valuation (profit or loss) 89,128,585 (393,126,382) Loss on valuation (other comprehensive income) (61,780,888) (54,956,301) Loss on transaction (243,384,689) (458,972,752) Financial liabilities measured at amortized cost: Interest expenses (154,423,394) (108,419,895) Gain (loss) on foreign currency translation 41,448,921 (3,052,547)

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

9. Fair Value

(1) Fair Value of Financial Instruments by Category

Carrying amount and fair value of financial instruments by category as of December 31, 2020 and 2019, are as follows:

(In thousands of won) December 31, 2020 December 31, 2019 Carrying Carrying

amount Fair value amount Fair value Financial assets (*): Financial assets measured at FVTPL W 12,839,859 12,839,859 12,836,464 12,836,464 Financial assets measured at FVOCI 25,981,110 25,981,110 16,158,580 16,158,580 Derivative financial assets 367,265,449 367,265,449 200,566,263 200,566,263 Financial liabilities (*): Derivative financial liabilities W 257,406,592 257,406,592 608,210,926 608,210,926

(*) Financial instruments including trade receivables and payables whose carrying amount is a reasonable approximation of fair value are excluded from fair value disclosures.

(2) Fair Value Hierarchy

Financial instruments measured at fair value or for which the fair value is disclosed, are categorized as the fair value hierarchy, and the defined levels are as follows:

⚫ Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. ⚫ Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). ⚫ Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Fair value hierarchy classifications of the financial instruments that are measured at fair value as of December 31, 2020 and 2019, are as follows:

(In thousands of won) December 31, 2020 Level 1 Level 2 Level 3 Total Financial assets: Financial assets measured at FVTPL W - - 12,839,859 12,839,859 Financial assets measured at FVOCI - 1,109,250 24,871,860 25,981,110 Derivative financial assets - 367,265,449 - 367,265,449 Financial liabilities: Derivative financial liabilities W - 257,406,592 - 257,406,592

(In thousands of won) December 31, 2019 Level 1 Level 2 Level 3 Total Financial assets: Financial assets measured at FVTPL W - - 12,836,464 12,836,464 Financial assets measured at FVOCI - 1,071,000 15,087,580 16,158,580 Derivative financial assets - 200,566,263 - 200,566,263 Financial liabilities: Derivative financial liabilities W - 608,210,926 - 608,210,926

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

9. Fair Value, Continued

(3) Valuation Techniques and the Input Variables

Valuation techniques and input variables used in the fair value of financial instruments categorized as Level 3 of the fair value hierarchy as of December 31, 2020, are as follows:

Valuation (In thousands of won) Fair value Level technique Input variables

Financial assets measured at W 12,839,859 3 Cost approach - FVTPL Perpetual growth rate Financial assets measured at Discounted cash 24,871,860 3 FVOCI flow model Ratio of operating profit before tax

(4) Valuation Processes for Fair Value Measurements Categorized as Level 3

The Company assesses fair value by obtaining a valuation report from Korea Asset Pricing Co., Ltd. and Construction Guarantee. The Company reports significant evaluation issues to the audit committee (AC).

10. Trade Receivables, Contract Assets and Other Receivables

(1) Trade receivables, contract assets and other receivables, and their provisions for impairment of receivables as of December 31, 2020 and 2019, consist of the following:

(In thousands of won) December 31, 2020 December 31, 2019 Trade Contract Other Trade Contract Other receivables assets receivables receivables assets receivables

Regular receivables W 363,291,706 2,273,702,094 35,607,679 279,309,946 2,630,547,033 57,915,596 Less: Provision for impairment (90,827,365) (66,453,899) (688,509) (86,005,697) (67,277,650) (898,102) W 272,464,341 2,207,248,195 34,919,170 193,304,249 2,563,269,383 57,017,494 Less: Non-current receivables (13,516,847) - - (16,891,144) - - Current receivables W 258,947,494 2,207,248,195 34,919,170 176,413,105 2,563,269,383 57,017,494

(2) Movements in provisions for impairment of receivables for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 2019 Trade Contract Other Trade Contract Other receivables assets receivables receivables assets receivables

Beginning W 86,005,697 67,277,650 898,102 84,271,510 - 1,051,159 Impairment loss 7,377,467 3,232,200 32 7,557,413 269,240,482 189,209 Receivables written-off during the year as uncollectible and others (2,270,814) (4,055,951) - 864,006 (201,962,832) - Unused amounts reversed (284,985) - (209,625) (6,687,232) - (342,266) Ending W 90,827,365 66,453,899 688,509 86,005,697 67,277,650 898,102

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

11. Derivatives

(1) As of December 31, 2020 and 2019, the Company has forward exchange contracts with Hana Bank and 8 other banks to hedge foreign exchange fluctuation risk associated with the foreign advance receipts and foreign payables. Details of derivative valuations are as follows:

(In thousands of won and in thousands of foreign currency) 2020 Trading purpose Hedging purpose Gain (loss) on Firm Gain (loss) on Gain (loss) on firm commitment Gain (loss) on Derivative derivative derivative commitment assets cash flow assets Short position Long position valuation valuation valuation (liabilities) hedges (liabilities) USD 6,927,570 KRW 7,889,399,786 W 6,480,345 311,906,425 (297,638,820) (285,826,976) - 343,849,858 USD 2,211,322 KRW 2,372,590,030 - 89,128,585 (86,287,773) 12,340,895 - (32,938,331) KRW 315,924 CNY 1,904 - - - - (2,865) 410 KRW 58,795,665 CNY 349,371 - - - 9,036 (817,062) (938,987) KRW 387,938,747 EUR 292,260 316,352 - - (1,904,621) 1,015,110 3,787,383 KRW 193,487,894 EUR 140,854 (1,677,134) - - 813,827 (30,244) (4,536,940) USD 252,850 EUR 218,005 - - - - 18,273,246 18,273,246 KRW 700,957 GBP 474 1,480 - - 2,560 3,225 2,145 KRW 638,022 GBP 419 (16,372) - - - - (16,372) KRW 123,607 JPY 11,086 (6,444) - - - - (6,444) KRW 73,562 NOK 579 - - - - (1,844) 223 KRW 3,642,721 NOK 27,634 - - - 40,688 (76,217) (110,413) KRW 154,237,479 USD 143,025 (492,649) - - (10,937,423) (10,311,695) 1,352,184 KRW 4,032,182,666 USD 3,513,008 (34,740,845) - - (69,714,993) (205,809,030) (206,548,093) W (30,135,267) 401,035,010 (383,926,593) (355,177,007) (197,757,376) 122,169,869

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

11. Derivatives, Continued

(In thousands of won and in thousands of foreign currency) 2019 Trading purpose Hedging purpose Gain (loss) on Firm Gain (loss) on Gain (loss) on firm commitment Gain (loss) on Derivative derivative derivative commitment assets cash flow assets Short position Long position valuation valuation valuation (liabilities) hedges (liabilities) USD 8,858,123 KRW 9,624,879,169 W (14,282,992) (424,046,219) 430,690,406 363,056,188 - (521,442,691) USD 5,763,490 KRW 6,727,404,404 30,418,308 72,722,625 (115,128,934) (67,391,089) - 107,868,032 USD 4,376,735,756 USD 3,745,314 (17,240,927) 26,276,918 (26,276,918) (115,097,031) (77,213,334) (72,817,033) KRW 2,170,664,146 USD 1,976,809 2,832,822 138,322,730 (138,322,730) (152,755,293) (59,920,642) 92,300,937 KRW 101 NOK 922 - - - 55,848 4,480 4,480 CNY 12,222,516 NOK 90,124 - 158,743 (158,743) 344,710 (70,709) (413,376) USD 4,932,883 NOK 38,222 5,339 - - 141,883 29,810 78,097 KRW 8 JPY 892 - - - 1,182 149 149 KRW 341,916 J PY 30,967 (8,663) 1,324 (1,324) (1,324) (3,793) (11,132) USD 288,463 JPY 27,558 96 15,465 (15,465) (17,757) (13,004) 5,583 KRW 214,918 G BP 140 (2,797) - - - - (2,797) KRW 1,667,848 G BP 1,119 20,519 (2,633) 2,633 2,633 21,959 39,845 KRW 305,716 EUR 264,095 - - - 498,321 1,593,994 1,593,994 KRW 814,035,160 EUR 611,615 (2,429,105) 4,845,756 (4,845,756) (736,149) (10,406,038) (12,609,189) USD 156,020,074 EUR 119,876 31,872 1,706,772 (1,706,772) (1,531,832) (1,652,716) 368,745 KRW 6 D KK 39 - - - 672 103 103 KRW 53,863,346 CNY 321,451 - (362,904) 362,904 333,110 (551,804) (914,708) USD 11,409,309 CNY 69,453 - - - (137,575) 51,715 51,715 W (655,528) (180,361,423) 144,599,301 26,766,497 (148,129,830) (405,899,246)

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

11. Derivatives, Continued

(2) The Company applies the fair value hedge accounting and is exposed to fluctuations in fair value until December 29, 2023. The realized gain and loss on derivative transactions upon the expiration of contracts for the year ended December 31, 2020, amounted to W219,686 million and W294,814 million, respectively (for the year ended December 31, 2019: W325,966 million and W476,459 million, respectively). The realized gain and loss on firm commitments recognized for the year ended December 31, 2020, amounted to W203,667 million and W216,391 million, respectively (for the year ended December 31, 2019: W355,305 million and W325,963 million, respectively).

(3) The Company is exposed to foreign exchange rate and interest rate risk since it has borrowings in foreign currency issued at floating rates. The Company performs various analysis through currency swap contract to manage foreign exchange rate and interest rate risk. As of December 31, 2020, the Company entered in an agreement to swap floating rate long-term borrowings amounting to USD 140 million (maximum maturity: August 30, 2022) with long-term borrowings amounting to W163,730 million with fixed rate of 1.53 ~ 3.61% with Woori Bank and others. The Company recognized loss on derivative valuation (equity) amounting to W989 million and derivative liabilities amounting to W12,311 million as of December 31, 2020.

(4) As of December 31, 2020, the Company has recognized loss on valuation of derivatives with cash flow hedge accounting amounting to W149,900 million after deducing tax effect amounting to W47,857 million as other comprehensive income. In relation to cash flow hedges, the expected maximum period of exposure to cash flow risk from the hedged item transactions excluding interest swap is less than 31 months from the end of the reporting period.

12. Inventories

Inventories as of December 31, 2020 and 2019, are as follows:

(In thousands of won) December 31, 2020 December 31, 2019

Work-in-process W 7,906,437 46,052,939 Raw materials 309,525,307 451,603,797 Materials in-transit 43,447,098 71,602,158 Inventory of construction completed (*) 1,454,682,500 1,764,668,108 W 1,815,561,342 2,333,927,002

(*) Inventory of construction completed is provided as collateral for borrowings of MERITZ SECURITIES CO., LTD. (Note 21).

The cost of inventories recognized as expense and included in ‘cost of sales’ amounts to W4,030,838 million (for the year ended December 31, 2019: W4,076,268 million).

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

13. Other Financial Assets and Liabilities

(1) Details of other financial assets and liabilities as December 31, 2020 and 2019, are as follows:

(In thousands of won) December 31, 2020 December 31, 2019 Current Non-current Current Non-current

Other financial assets: Loans W 1,067,697 3,558,490 1,263,444 4,491,037 Accrued income 5,627,752 - 10,650,694 - Guarantee deposits provided 11,071,500 1,256,009 12,562,843 1,539,924 Small and medium industry finance debentures 59,000,000 - 59,000,000 - Long-term financial instruments - 24,600 - 24,600 W 76,766,949 4,839,099 83,476,981 6,055,561 Other financial liabilities: Guarantee deposits received W - 9,647,290 - 8,833,052 Long-term accrued expenses - 39,817,725 - 33,952,952 W - 49,465,015 - 42,786,004

(2) As of December 31, 2020, W59,000 million of other current financial assets are pledged as securities for borrowings of Industrial Bank of Korea (Note 21). W25 million of long-term financial instruments are restricted to maintain checking accounts (Note 5).

14. Financial Assets at Fair Value through Profit or Loss

Details of financial assets at fair value through profit or loss as of December 31, 2020 and 2019, are as follows:

(In thousands of won) December 31, 2020 December 31, 2019

Equity investments W 12,784,319 12,593,896 Beneficiary securities 55,540 242,568 W 12,839,859 12,836,464

Among the above equity investments, Construction Guarantee equity investment of W12,145 million are provided as collateral in relation to borrowings (Note 21).

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

15. Financial Assets at Fair Value through Other Comprehensive Income

(1) Details of equity instruments at fair value through other comprehensive income as of December 31, 2020 and 2019, are as follows:

(In thousands of won) December 31, 2020 December 31, 2019

Listed equity securities: EB TECH CO.,LTD. W 1,109,250 1,071,000 Unlisted equity securities: Samsung Venture Investment Corp. and others 24,871,860 15,087,580 W 25,981,110 16,158,580

Upon disposal of the above equity instruments, the related accumulated other comprehensive income is reclassified to retained earnings and not reclassified to profit or loss.

(2) During the year ended December 31, 2019, the Company disposed of unlisted shares, iMarketKorea Inc., and others and fair value of the disposed shares were W4,508 million and W1 million, respectively. W4,069 million recognized in other comprehensive income was reclassified as retained earnings after disposal.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

16. Investments in Subsidiaries, Associates and Joint Ventures

(1) Details of investments in subsidiaries, associates and joint ventures as of December 31, 2020 and 2019, are as follows:

Percentage (In thousands of won) of ownership Investee Location interest (%) 2020 2019 Samsung Heavy Industries (Ningbo) Co., Ltd. China 100.0 W 167,810,098 167,810,098 Samsung Heavy Industries (Rongcheng) Co., Ltd. China 100.0 163,647,755 163,647,755 Rongcheng Gaya Heavy Industries Co., Ltd. China 100.0 20,587,666 20,587,666 Samsung Heavy Industries India Pvt.Ltd. India 100.0 3,537,966 3,537,966 Camellia Consulting Corporation USA 100.0 - - Samsung Heavy Industries (M) SDN.BHD Malaysia 100.0 - - Samsung Heavy Industries Nigeria Co. Ltd Nigeria 100.0 95,730,850 95,730,850 SHI Mozambique LDA Mozambique 100.0 127,835 127,835 KC LNG Tech Co., Ltd. Korea 16.6 - 2,553,080 ZVEZDA-Samsung Heavy Industries LLC (*) Russia 49.0 230,151 - W 451,672,321 453,995,250

(*) It was newly invested and was classified as a related company because it did not have joint control.

(2) Changes in ownership interests in subsidiaries, associates and joint ventures as at December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 2019

Beginning balance W 453,995,250 454,060,499 Acquisition 230,151 71,952 Disposal - (32,094) Impairment (*) (2,553,080) (2,658,187) Other - 2,553,080 Ending balance W 451,672,321 453,995,250

(*) The Company recognized impairment for KC LNG Tech Co., Ltd., an associate of the Company, during 2020. The Company recognized impairment for Samsung Heavy Industries (M) SDN.BHD and Camellia Consulting Corporation subsidiaries of the Company, during 2019.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

17. Property, Plant and Equipment

(1) Changes in property, plant and equipment for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 Tools, furniture Construction- Land Building Structures Machinery Vehicles and fixtures in-progress Total

Beginning net book amount W 1,896,310,875 934,982,979 1,334,894,826 578,264,946 267,390,344 51,552,020 49,184,269 5,112,580,259 Acquisition 53,929 17,905 3,151 128,499 - (122,308) 92,725,912 92,807,088 Disposal (6,570,700) (4,048,992) - (2,783,930) (51,961) (101,207) - (13,556,790) Depreciation - (27,807,229) (39,826,509) (64,454,972) (17,186,596) (30,872,247) - (180,147,553) Impairment loss (23,660,352) (2,334,226) (2,878,909) (27,327,005) (898,058) (12,264,380) - (69,362,930) Reassessment (8,364,305) ------(8,364,305) Transfer (*) 5,034,362 785,608 40,390,804 16,107,304 2,260,136 33,680,325 (106,509,874) (8,251,335) Ending net book amount W 1,862,803,809 901,596,045 1,332,583,363 499,934,842 251,513,865 41,872,203 35,400,307 4,925,704,434 Acquisition cost 1,886,464,161 1,293,626,308 1,905,289,744 1,635,369,608 505,635,752 668,241,382 35,400,307 7,930,027,262 Accumulated depreciation - (389,696,037) (569,827,472) (1,106,798,722) (253,196,142) (614,091,292) - (2,933,609,665) Accumulated impairment loss (23,660,352) (2,334,226) (2,878,909) (28,636,044) (925,745) (12,277,887) - (70,713,163) Ending net book amount W 1,862,803,809 901,596,045 1,332,583,363 499,934,842 251,513,865 41,872,203 35,400,307 4,925,704,434

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

17. Property, Plant and Equipment, Continued

(1) Changes in property, plant and equipment for the years ended December 31, 2020 and 2019, are as follows, continued:

(In thousands of won) 2019 Tools, furniture Construction- Land Building Structures Machinery Vehicles and fixtures in-progress Total Beginning net book amount W 1,896,624,766 962,519,726 1,352,393,049 643,733,220 284,758,372 81,167,568 32,575,729 5,253,772,430 Acquisition ------69,052,141 69,052,141 Disposal (687,200) (563,494) - (4,091,088) (102,776) (113,907) - (5,558,465) Depreciation - (27,883,881) (39,298,999) (67,440,805) (18,345,602) (44,611,522) - (197,580,809) Transfer (*) 373,309 910,628 21,800,776 6,063,619 1,080,350 15,109,881 (52,443,601) (7,105,038) Ending net book amount W 1,896,310,875 934,982,979 1,334,894,826 578,264,946 267,390,344 51,552,020 49,184,269 5,112,580,259 Acquisition cost 1,896,310,875 1,297,986,227 1,864,895,789 1,627,283,383 506,200,816 645,113,853 49,184,269 7,886,975,212 Accumulated depreciation - (363,003,248) (530,000,963) (1,047,709,398) (238,782,785) (593,548,326) - (2,773,044,720) Accumulated impairment loss - - - (1,309,039) (27,687) (13,507) - (1,350,233) Ending net book amount W 1,896,310,875 934,982,979 1,334,894,826 578,264,946 267,390,344 51,552,020 49,184,269 5,112,580,259

(*) For the year ended December 31, 2020, W5,186 million (for the year ended December 31, 2019: W7,105 million) and W1,458 million of property, plant and equipment was replaced by intangible assets and investment property, respectively (Note 19, 20).

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

17. Property, Plant and Equipment, Continued

(2) If land was stated on the historical cost basis, the amounts as of December 31, 2020 and 2019, would be as follows:

(In thousands of won) December 31, 2020 December 31, 2019

Cost W 757,079,639 779,665,075

(3) Depreciation expense of W154,617 million (for year ended December 31, 2019: W168,958 million) and W25,530 million (for the year ended December 31, 2019: W28,623 million) has been charged to ‘cost of sales’ and ‘selling, general and administrative expenses’, respectively.

(4) The Company determined that accumulated operating loss indicated impairment of the cash-generating unit and recognized impairment loss of W110,897 million by conducting an impairment test. Because goodwill allocated to the cash-generating unit did not exist, the impairment loss was allocated to property, plant and equipment, intangible assets and right-of-use assets, primarily to land, machinery and right-of-use assets. The recoverable amount of the cash-generating unit was calculated based on the value-in-use and recognized to the limit of the fair value less costs to sell. W102,533 million of the impairment losses are presented in other expenses, and W8,364 million (before tax) are presented in a reduction in revaluation surplus. The Company estimated the value-in-use by discounting the future cash flows of the cash-generating unit at an after-tax discount rate that reflects the current market valuation, and estimated the fair value less costs to sell from the amount obtainable from the sale of individual assets in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal. Fair value is estimated based on the market approach and the cost approach reflecting physical and technical obsolescence.

- Valuation techniques and the input variables used for measuring fair value The measured fair value of assets was categorized as Level 3 fair value based on input variables used in the valuation techniques. The valuation techniques and input variables which are used for measuring fair value are as follows:

Valuation Significant but unobservable Correlation between the main unobservable techniques input variables variable and fair value

Official Time adjustment If flexibility of land value increases (decreases), assessed (Rate of changes in land value) then fair value increases (decreases). reference Regional contribution If regional contribution increases (decreases), then land price fair value increases (decreases). Individual contribution If the adjusted value of terms of residential lot and others increases (decreases), then fair value increases (decreases). Other contributions If the adjusted value of the level of land value and others increases (decreases), then fair value increases (decreases). Cost Method Changes in the price of raw If the price of materials and others rises (falls), materials, materials, labor, and then fair value increases (decreases). others Status of maintenance, repair, If the status of maintenance, repair and others is management, and others in a good (poor) condition, then fair value increases (decreases). Comparable Comparable transaction of an Calculation of the value of the target object transaction object that has the same or through the process of correcting the private method similar factors for value creation information, correcting the timing, and comparing to the target object. the factors of value creation and others.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

17. Property, Plant and Equipment, Continued

(5) To assess impairment, the Company assessed the recoverable amount by discounting the future cash flows for the remaining periods of the cash-generating unit at a discount rate of 9.7%.

The effect of the change in the discount rate used for estimating value-in-use is as follows:

1%p increase of discount rate 1%p decrease of discount rate Cash-generating unit W542,979 million decrease W689,305 million decrease

(6) The amount of impairment loss allocated to assets of the cash-generating unit is as follows:

(In thousands of won) 2020

Land (*) W 32,024,657 Building 2,334,226 Structures 2,878,909 Machinery 27,327,005 Vehicles 898,058 Tools, furniture and fixtures 12,264,380 Memberships 702,390 Other intangible assets 73,113 Right-of-use assets 32,394,651 W 110,897,389

(*) Of the impairment loss allocated to land, W8,364 million are presented in a reduction in revaluation surplus.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

17. Property, Plant and Equipment, Continued

(7) Details of property, plant and equipment provided as collateral in relation to borrowings and advance receipt refund guarantee as of December 31, 2020, and 2019, are as follows:

(In millions of won) December 31, 2020 Carrying Secured Related Collateral amount amount Related item amount Secured party

Land W 676,409 Borrowings 991,571 Building 454,666 (Note 21) Structures 876,002 1,550,200 Advance receipt Korea Exim Bank Machinery 218,069 refund guarantee 41,840 Vehicles 203,208 (Note 23) Land 1,077,431 Borrowings 470,000 Building 329,628 (Note 21) Structures 123,822 900,000 Advance receipt Korea Development Bank Machinery 26,854 refund guarantee 753,331 Vehicles 258 (Note 23) Land 38,440 Borrowings Korea Investment Capital, 168,000 140,000 Building 79,591 (Note 21) Mirae Asset Capital

(In millions of won) December 31, 2019 Carrying Secured Related Collateral amount amount Related item amount Secured party

Land W 484,334 Borrowings 79,962 Building 168,022 (Note 21) Structures 480,701 1,214,600 Advance receipt Korea Exim Bank Machinery 150,399 refund guarantee 584,189 Vehicles 120,888 (Note 23) Land 1,004,319 Borrowings 420,000 Building 26,140 (Note 21) Structures 57,872 900,000 Advance receipt Korea Development Bank refund guarantee 313,702 Machinery 22,622 (Note 23) Land 38,519 Borrowings 110,500 85,000 Korea Investment Capital Building 81,510 (Note 21)

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

18. Lease

As a lessee, information about the lease of the Company is as follows:

(1) Amounts recognized in the statement of financial position

Details of right-of-use and lease liabilities in relation to leases as of December 31, 2020 and December 31, 2019, are as follows:

December 31, 2020 (In thousands of won) Land Building Machinery Vehicles Total Acquisition cost W 483,941 2,069,634 322,004 58,884,071 61,759,650 Accumulated depreciation (253,579) (1,236,867) (175,639) (27,698,914) (29,364,999) Accumulated impairment loss (*) (230,362) (832,767) (146,365) (31,185,157) (32,394,651) Net book amount W - - - - -

(*) An impairment test recognized W32,395 million as impairment losses (Note 17).

December 31, 2019 (In thousands of won) Land Building Machinery Vehicles Total Acquisition cost W 1,885,895 2,386,052 81,057 71,942,666 76,295,670 Accumulated depreciation (508,684) (882,574) (49,535) (21,847,150) (23,287,943) Net book amount W 1,377,211 1,503,478 31,522 50,095,516 53,007,727

(In thousands of won) December 31, 2020 December 31, 2019 Lease liabilities: Current W 16,588,716 24,730,559 Non-Current 17,815,979 29,743,211 W 34,404,695 54,473,770

Additions to the right-of-use assets for the year ended December 31, 2020 were W20,684 million (for the year ended December 31, 2019: W15,007 million). Disposals of the right-of-use assets for year ended December 31, 2020 were W296 million.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

18. Lease, Continued

(2) Amounts recognized in the statement of profit or loss

Expenses recognized in profit or loss in relation to leases for years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 2019 Depreciation of right-of-use assets: Land W 4,420,626 4,628,693 Building 828,003 1,288,481 Machinery 207,161 762,887 Vehicles 35,446,987 51,628,646 W 40,902,777 58,308,707 Impairment loss of right-of-use assets: Land W 230,362 - Building 832,767 - Machinery 146,365 - Vehicles 31,185,157 - W 32,394,651 - Interest expense on lease liabilities (included in financial costs) W 2,221,287 3,330,808 Expense relating to leases of low-value assets that are not short- term leases (included in administrative expenses) 831,501 747,751

The total cash outflow for leases for the year ended December 31, 2020 was W43,390 million (for the year ended December 31, 2019: W60,984 million).

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

19. Investment Properties

(1) Details of investment properties as of December 31, 2020 and 2019, are as follows:

(In thousands of won) December 31, 2020 December 31, 2019 Accumulated Book Accumulated Book Cost depreciation amount Cost depreciation amount Land W 10,613,124 - 10,613,124 10,613,124 - 10,613,124 Building 7,781,563 (620,456) 7,161,107 6,323,113 (475,715) 5,847,398 W 18,394,687 (620,456) 17,774,231 16,936,237 (475,715) 16,460,522

(2) Changes in investment properties for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 2019 Land Building Total Land Building Total Beginning balance W 10,613,124 5,847,398 16,460,522 10,613,124 5,973,744 16,586,868 Depreciation - (144,741) (144,741) - (126,346) (126,346) Increase (*) - 1,458,450 1,458,450 - - - Ending balance W 10,613,124 7,161,107 17,774,231 10,613,124 5,847,398 16,460,522

(*) For the year ended December 31, 2020, W1,458 million of property, plant and equipment was replaced by investment property (Note 17).

(3) There is no rental income from investment properties for the year ended December 31, 2020, and operating expenses (including repairs and maintenance) of W134 million (for the year ended December 31, 2019: W115 million) were incurred on properties of which no rental income was generated.

(4) The fair value cannot be reasonably assessed, because the above investment property has low probability of occurrence of comparable market transactions, and there is no alternative measuring method.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

20. Intangible Assets

(1) Changes in intangible assets for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 Other intangible Memberships assets Total

Beginning net book amount W 21,580,537 22,869,200 44,449,737 Acquisition (*1) - 5,185,761 5,185,761 Amortization - (22,794,495) (22,794,495) Disposal (5,324) - (5,324) Impairment loss (*2) (702,390) (73,113) (775,503) Ending net book amount W 20,872,823 5,187,353 26,060,176 Acquisition cost 24,662,583 286,148,454 310,811,037 Accumulated amortization and impairment loss (3,789,760) (280,961,101) (284,750,861) Ending net book amount W 20,872,823 5,187,353 26,060,176

(In thousands of won) 2019 Other intangible Memberships assets Total

Beginning net book amount W 21,880,537 34,855,784 56,736,321 Acquisition (*1) - 7,105,037 7,105,037 Amortization - (19,091,621) (19,091,621) Disposal (300,000) - (300,000) Ending net book amount W 21,580,537 22,869,200 44,449,737 Acquisition cost 24,667,907 280,962,693 305,630,600 Accumulated amortization and impairment loss (3,087,370) (258,093,493) (261,180,863) Ending net book amount W 21,580,537 22,869,200 44,449,737

(*1) The amount includes W5,186 million (for the year ended December 31, 2019: W7,105 million) transferred from construction-in-progress (Note 17). (*2) The Company recognized impairment loss by impairment assessment for the year ended December 31, 2020 (Note 17).

(2) Amortization of intangible assets of W71 million and W22,723 million (for the year ended December 31, 2019: W19,092 million) has been charged to ‘cost of sales’ and ‘selling, general and administrative expenses’, respectively.

(3) The Company recognized ‘research and development expenses’ totaling of W49,827 million (for the year ended December 31, 2019: W49,919 million).

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

21. Borrowings and Debentures

(1) Details of book amount of borrowings as of December 31, 2020 and 2019, are as follows:

(In thousands of won) Annual interest rate December 31, December 31, Lender (%) 2020 2019

Debentures Unsecured debenture - 3.30 ~ 4.20 W 498,559,072 569,476,358 Less: current portion (289,890,240) (299,739,782) W 208,668,832 269,736,576 Long-term borrowings Meritz Securities and Facility loans (*1) other 2 banks 3.40 ~ 4.20 W 840,000,000 85,000,000 Industrial Bank of Korea and other 1 General loans (*1) bank 3.38 ~ 4.00 333,520,000 320,000,000 Production finance (*1) Korea Exim Bank 2.52 ~ 3.51 870,930,000 797,075,000 Export development loan (*1) Korea Exim Bank 3.07 100,000,000 - FRN (*2) Woori Bank 1.53 ~ 2.29 108,800,000 162,092,000 Korea Investment& CP Securities 3.78 ~ 4.35 130,000,000 100,000,000 Less: current portion (1,284,450,000) (1,032,365,000) W 1,098,800,000 431,802,000 Short-term borrowings Industrial Bank of Korea and other 1 General loans (*1,3) bank 2.32 ~ 3.49 W 287,000,000 237,000,000 Construction Operation loans of housing Guarantee construction (*4) Cooperative 1.12 8,593,000 8,593,000 Woori Bank and Banker’s usance other 5 banks 0.84 ~ 1.32 422,499,310 462,839,371 Shared growth loan (*1) Korea Exim Bank 2.18 ~ 2.52 368,691,000 379,962,000 DB Financial Investment Co., Ltd. CP and other 1 bank 3.36 ~ 4.30 51,000,000 - Korea Investment& Electronic short-term debenture Securities 3.05 120,000,000 100,000,000 SC Bank and other 1 Invoice loan bank 1.98 ~ 2.27 123,530,921 200,958,792 Production Finance (*1) Korea Exim Bank 2.56 ~ 2.83 430,496,000 245,573,000

W 1,811,810,231 1,634,926,163 Current maturities of long-term debts Current portion of debentures W 289,890,240 299,739,782 Current portion of long-term borrowings 1,284,450,000 1,032,365,000 W 1,574,340,240 1,332,104,782 W 4,693,619,303 3,668,569,521

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

21. Borrowings and Debentures, Continued

(1) Details of book amount of borrowings as of December 31, 2020 and 2019, are as follows, continued:

(*1) Certain property, plant and equipment, ships under construction and raw-materials for construction are provided as collateral for borrowings from Korea Exim Bank and others (Note 12, 17). (*2) Woori Bank Korea Branch provides payment guarantees on FRN issued by Woori Bank Hong Kong Branch. (*3) Other current financial assets amounting to W59,000 million are provided as collateral for borrowings from Industrial Bank of Korea (Notes 8, 13). (*4) Financial assets at fair value through profit or loss amounting W12,145 million are provided as collateral for borrowings from Construction Guarantee (Notes 8, 14).

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

21. Borrowings and Debentures, Continued

(2) Details of debentures as of December 31, 2020 and 2019, are as follows:

(In thousands of won) Annual interest rate (%) December 31, 2020 December 31, 2019

The 93-3rd unsecured debenture - W - 9,998,332 The 97th unsecured debenture - - 19,996,108 The 98-1st unsecured debenture - - 9,995,222 The 98-2nd unsecured debenture - - 9,991,249 The 99th unsecured debenture - - 9,994,593 The 100th unsecured debenture - - 24,987,184 The 101st unsecured debenture - - 9,992,598 The 102nd unsecured debenture - - 49,956,615 The 103rd unsecured debenture - - 14,986,621 The 104th unsecured debenture - - 29,973,087 The 105th unsecured debenture - - 59,934,271 The 106-1st unsecured debenture - - 19,973,954 The 106-2nd unsecured debenture 4.00 29,985,658 29,955,443 The 106-3rd unsecured debenture 4.17 19,984,035 19,968,089 The 107th unsecured debenture 4.00 19,989,979 19,969,855 The 108-1st unsecured debenture - - 29,959,949 The 108-2nd unsecured debenture 4.00 9,994,958 9,984,893 The 109th unsecured debenture 3.69 30,000,000 30,000,000 The 110th unsecured debenture 3.69 30,000,000 30,000,000 The 111-1st unsecured debenture 3.55 29,991,200 29,950,920 The 111-2nd unsecured debenture 3.8 19,983,636 19,964,980 The 112th unsecured debenture 4.20 9,986,848 9,980,490 The 113th unsecured debenture 3.71 29,997,177 29,990,952 The 114th unsecured debenture 3.71 29,997,058 29,990,833 The 115th unsecured debenture 3.95 9,989,990 9,980,120 The 116-1st unsecured debenture 3.80 44,939,042 - The 116-2nd unsecured debenture 4.00 9,986,121 - The 116-3rd unsecured debenture 4.20 8,986,506 - The 118th unsecured debenture 3.55 9,986,575 - The 119-1st unsecured debenture 3.30 19,989,974 - The 119-2nd unsecured debenture 3.80 4,992,378 - The 120-1st unsecured debenture 3.55 9,986,436 - The 120-2nd unsecured debenture 3.80 19,968,164 - The 121st unsecured debenture 3.77 24,959,108 - The 122-1st unsecured debenture 3.55 4,992,197 - The 122-2nd unsecured debenture 3.77 24,958,626 - The 123-1st unsecured debenture 3.55 9,981,732 - The 123-2nd unsecured debenture 3.80 9,981,254 - The 124-1st unsecured debenture 3.55 4,990,136 - The 124-2nd unsecured debenture 3.80 9,980,258 - The 125th unsecured debenture 3.55 9,980,026 - W 498,559,072 569,476,358 Current portion of debentures (289,890,240) (299,739,782) W 208,668,832 269,736,576

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

21. Borrowings and Debentures, Continued

(3) Details of issue of debentures as of December 31, 2020, are as follows:

The 106-2nd unsecured The 106-3rd unsecured The 107th unsecured

debenture debenture debenture Face amount W 30,000 million W 20,000 million W 20,000 million Issuing cost W 60 million W 40 million W 40 million Interest rate 4.0% 4.17% 4.0% Interest payment Payment of credit every Payment of credit every Payment of credit every three months after three months after three months after issued date issued date issued date Issued date June 18, 2019 June 18, 2019 June 26, 2019 Maturity date June 18, 2021 December 18, 2021 June 26, 2021

The 108-2nd unsecured The 109th unsecured The 110th unsecured

debenture debenture debenture Face amount W 10,000 million W 30,000 million W 30,000 million Issuing cost W 20 million W - W - Interest rate 4% 3.69% 3.69% Interest payment Payment of credit every Payment of credit every Payment of credit every three months after three months after three months after issued date issued date issued date Issued date June 27, 2019 August 28, 2019 September 6, 2019 Maturity date June 27, 2021 February 26, 2021 March 4, 2021

The 111-1st unsecured The 111-2nd unsecured The 112th unsecured

debenture debenture debenture Face amount W 30,000 million W 20,000 million W 10,000 million Issuing cost W 60 million W 40 million W 20 million Interest rate 3.55% 3.8% 4.2% Interest payment Payment of credit every Payment of credit every Payment of credit every three months after three months after three months after issued date issued date issued date Issued date September 19, 2019 September 19, 2019 November 26, 2019 Maturity date March 19, 2021 September 17, 2021 November 25, 2022

The 113th unsecured The 114th unsecured The 115th unsecured

debenture debenture debenture Face amount W 30,000 million W 30,000 million W 10,000 million Issuing cost W 9 million W 9 million W 20 million Interest rate 3.71% 3.71% 3.95% Interest payment Payment of credit every Payment of credit every Payment of credit every three months after three months after three months after issued date issued date issued date Issued date December 16, 2019 December 23, 2019 December 23, 2019 Maturity date June 16, 2021 June 23, 2021 December 23, 2021

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

21. Borrowings and Debentures, Continued

(3) Details of issue of debentures as of December 31, 2020, are as follows, continued:

The 116-1st unsecured The 116-2nd unsecured The 116-3rd unsecured

debenture debenture debenture Face amount W 45,000 million W 10,000 million W 9,000 million Issuing cost W 90 million W 20 million W 18 million Interest rate 3.8% 4% 4.2% Interest payment Payment of credit every Payment of credit every Payment of credit every three months after three months after three months after issued date issued date issued date Issued date March 13, 2020 March 13, 2020 March 13, 2020 Maturity date March 11, 2022 September 13, 2022 March 13, 2023

The 118th unsecured The 119-1st unsecured The 119-2nd

debenture debenture unsecured debenture Face amount W 10,000 million W 20,000 million W 5,000 million Issuing cost W 20 million W 20 million W 10 million Interest rate 3.55% 3.3% 3.8% Interest payment Payment of credit every Payment of credit every Payment of credit every three months after three months after three months after issued date issued date issued date Issued date June 29, 2020 June 29, 2020 June 29, 2020 Maturity date December 29, 2021 June 29, 2021 June 29, 2022

The 120-1st unsecured The 120-2nd unsecured The 121st unsecured

debenture debenture debenture Face amount W 10,000 million W 20,000 million W 25,000 million Issuing cost W 20 million W 40 million W 50 million Interest rate 3.55% 3.8% 3.77% Interest payment Payment of credit every Payment of credit every Payment of credit every three months after three months after three months after issued date issued date issued date Issued date July 16, 2020 July 16, 2020 August 18, 2020 Maturity date January 17, 2022 July 15, 2022 August 17, 2022

The 122-1st unsecured The 122-2nd unsecured The 123-1st unsecured

debenture debenture debenture Face amount W 5,000 million W 25,000 million W 10,000 million Issuing cost W 10 million W 50 million W 20 million Interest rate 3.55% 3.77% 3.55% Interest payment Payment of credit every Payment of credit every Payment of credit every three months after three months after three months after issued date issued date issued date Issued date August 25, 2020 August 25, 2020 November 10, 2020 Maturity date February 25, 2022 August 24, 2022 May 10, 2022

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

21. Borrowings and Debentures, Continued

(3) Details of issue of debentures as of December 31, 2020, are as follows, continued:

The 123-2nd unsecured The 124-1st unsecured

debenture debenture Face amount W 10,000 million W 5,000 million Issuing cost W 20 million W 10 million Interest rate 3.8% 3.55% Interest payment Payment of credit every three Payment of credit every three

months after issued date months after issued date Issued date November 10, 2020 December 18, 2020 Maturity date November 10, 2022 June 18, 2022

The 124-2nd unsecured The 125th unsecured

debenture debenture Face amount W 10,000 million W 10,000 million Issuing cost W 20 million W 20 million Interest rate 3.8% 3.55% Interest payment Payment of credit every three Payment of credit every three

months after issued date months after issued date Issued date December 18, 2020 December 28, 2020 Maturity date December 18, 2022 June 28, 2022

22. Employ Benefit

The defined benefit pension plan that the Company operates is final salary pension plan, which provide benefits to employees in the form of a guaranteed level of pension payable for life. The level of benefits provided depends on employees’ length of service and their salaries in the final years leading up to retirement. The majority of benefit payments are from trustee administered funds; however, there are also a number of unfunded plans.

(1) Details of net defined benefit liabilities recognized in the separate statements of financial position as of December 31, 2020 and 2019, are as follows:

(In thousands of won) December 31, 2020 December 31, 2019

Present value of funded defined benefit obligations W 469,750,881 481,593,257 Present value of unfunded defined benefit obligations 11,553,343 12,976,449 W 481,304,224 494,569,706 Fair value of plan assets (*) (465,971,413) (448,115,757) Liability in the separate statement of financial position W 15,332,811 46,453,949

(*) The contributions to the National Pension Fund of W581 million are included in the fair value of plan assets as of December 31, 2020 (as of December 31, 2019: W581 million).

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

22. Employ Benefit, Continued

(2) Changes in the defined benefit obligations for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 2019

Beginning balance W 494,569,706 488,723,201 Past service cost (352,442) - Current service cost 53,687,379 56,958,424 Interest expense 13,054,965 13,672,577 Remeasurements: Actuarial gain (loss) from change in demographic assumptions (5,384) (2,878,010) Actuarial gain (loss) from change in financial assumptions 1,154,649 (36,545,735) Actuarial gain (loss) from experience adjustments (16,416,268) 22,096,895 Payments from plans: Benefit payments (66,608,557) (47,457,646) Transfer from and to related companies 2,220,176 - Ending balance W 481,304,224 494,569,706

(3) Changes in the fair value of plan assets for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 2019

Beginning balance W 448,115,757 412,220,584 Interest income 11,813,875 11,424,278 Remeasurements: Return on plan assets (excluding amounts included in

interest income) (4,199,766) (4,551,513) Contributions: Employers 69,174,400 71,780,900 Payments from plans: Benefit payments (58,932,853) (42,758,492) Ending balance W 465,971,413 448,115,757

(4) Plan assets as of December 31, 2020 and 2019, consist of as follows:

(In thousands of won) December 31, 2020 December 31, 2019 Composition Composition Quoted price (%) Quoted price (%)

Cash and cash equivalents W 465,390,000 99.9 447,534,344 99.9 Others (National Pension Fund) 581,413 0.1 581,413 0.1 W 465,971,413 100 448,115,757 100.0

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

22. Employ Benefit, Continued

(5) The significant actuarial assumptions as of December 31, 2020 and 2019, are as follows:

2020 2019 Discount rate 2.8% 2.9% Salary growth rate 2.8% 2.8%

(6) The sensitivity of the defined benefit obligations as of December 31, 2020, to changes in the weighted significant assumptions is:

(In thousands of won) Effect on defined benefit obligation Increase Decrease

Discount rate (1% variation) W (26,415,884) 29,460,611 Salary growth rate (1% variation) 29,744,103 (27,141,100)

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. The sensitivity of the defined benefit obligation to changes in principal actuarial assumptions is calculated using the projected unit credit method, the same method applied when calculating the defined benefit obligations recognized on the separate statement of financial position. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.

(7) The effect of defined benefit plans on future cash flows

The Company reviews the funding level on an annual basis and has a policy of preserving deficit from the fund. Expected contributions to post-employment benefit plans for the year ending December 31, 2021, are W62,609 million and the weighted average duration of the defined benefit obligations is 5.95 years.

Expected maturity analysis of undiscounted pension benefits as of December 31, 2020, is as follows:

Less than 1 Between 1 Between 2 (In thousands of won) year and 2 years and 5 years Over 5 years Total

Pension benefits W 68,663,763 66,999,339 194,956,646 295,946,812 626,566,560

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

23. Provisions, Contingent Liabilities and Commitments

(1) Provisions

Details and changes in provisions for liabilities for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) January 1, 2020 Increase (decrease) December 31, 2020

Litigations and others W 385,267,316 319,248,990 704,516,306 Others 15,874,825 2,090,570 17,965,395 W 401,142,141 321,339,560 722,481,701

(In thousands of won) January 1, 2019 Increase (decrease) December 31, 2019

Litigations and others W 432,983,802 (47,716,486) 385,267,316 Others 15,834,852 39,973 15,874,825 W 448,818,654 (47,676,513) 401,142,141

As of December 31, 2020, the Company recognizes the best estimate which is expected to be paid in relation to pending lawsuits as provisions. The final liability of the Company is subject to change from the estimated amount depending on the outcome of this case. In addition, the Company has accrued provision for the estimated costs with regard to the result of arbitration caused by cancellation and compensation for damages of shipbuilding contract.

(2) Contingent liabilities

(i) As of December 31, 2020, the Company is named as a defendant in 37 legal cases, excluding the case and the arbitration on which the Company recognized provision. The aggregate amounts of claims as a defendant amounted to approximately W411,570 million. The said case is still pending in court and as of December 31, 2020, the outcome of these cases is uncertain. Accordingly, the ultimate effect of these matters on the financial position of the Company cannot be determined.

(ii) The Company provides payment guarantees for subsidiary’s refund guarantee of USD 71 million, MYR 12 million and borrowings up to CNY 571 million (Executed amount: CNY 280 million) and USD 70 million (Executed amount: USD 70 million). And, the Company provides guarantees of USD 10 million for a subsidiary’s currency forward contracts (Note 37).

(3) Commitments

(i) As of December 31, 2020, the Company is provided with refund guarantee of USD 5,009 million from Korea Exim bank and others. The ships under construction and other property, plant and equipment are pledged as collaterals for the guarantees provided by the financial institutions (Note 12, 17).

(ii) Commitment limits made with financial institutions are as of December 31, 2020, is as follows:

(In millions of won) Financial institution Contract limit

Overdrawn account Shinhan Bank and 2 others W 21,000 Trade finance Woori Bank and 7 others 856,160 General loan Korea Exim Bank and 11 others 3,750,321 Purchase card and others IBK Industrial Bank of Korea and 5 others 109,000

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

24. Share Capital and Share Premium

The Company’s total number of authorized shares is 800 million shares and the par value per share is W5,000. As of December 31, 2020, total number of shares issued is 630,114,845 shares, including 114,845 shares of preferred share, and share capital is W3,150,574 million.

Ordinary Preferred Share (In thousands of won) shares shares Total (*) Share capital premium Total

January 1, 2019 604,035,571 114,845 604,150,416 W 3,150,574,225 944,052,385 4,094,626,610 December 31, 2019 604,035,571 114,845 604,150,416 3,150,574,225 944,052,385 4,094,626,610 December 31, 2020 604,035,571 114,845 604,150,416 3,150,574,225 944,052,385 4,094,626,610

(*) The Company holds 25,964,429 shares of its ordinary shares (Note 25).

25. Accumulated Other Comprehensive Income and Other Components of Equity

(1) Changes in accumulated other comprehensive income for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) January 1, 2020 Increase (decrease) December 31, 2020

Financial assets at fair value through other comprehensive income W 6,762,861 7,445,478 14,208,339 Loss on valuation of derivatives (112,430,538) (38,219,223) (150,649,761) Reevaluation reserves 846,417,517 (8,278,569) 838,138,948 W 740,749,840 (39,052,314) 701,697,526

(In thousands of won) January 1, 2019 Increase (decrease) December 31, 2019

Financial assets at fair value through other comprehensive income W 7,718,387 (955,526) 6,762,861 Loss on valuation of derivatives (30,893,355) (81,537,183) (112,430,538) Reevaluation reserves 846,614,254 (196,737) 846,417,517 W 823,439,286 (82,689,446) 740,749,840

Changes in accumulated other comprehensive income represent net of tax effect amounts.

(2) Other components of equity as of December 31, 2020 and 2019, are as follows:

(In thousands of won) December 31, 2020 December 31, 2019

Treasury share W (970,268,048) (970,268,048) Gain on disposal of treasury share 6,360,652 6,360,652 Stock options 11,250 11,250 W (963,896,146) (963,896,146)

(3) As of December 31, 2020, the Company holds 25,964 thousand shares of its ordinary shares amounting to W970,268 million. The treasury share is presented as the deduction from equity.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

26. Retained Earnings

(1) Retained earnings as of December 31, 2020 and 2019, consist of:

(In thousands of won) December 31, 2020 December 31, 2019

Legal reserves (*1) W 103,100,000 103,100,000 Discretionary reserves (*2) 1,169,350,139 2,507,782,093 Undisposed accumulated deficit (1,417,718,024) (1,338,431,954) W (145,267,885) 1,272,450,139

(*1) The Commercial Code of the Republic of Korea requires the Company to appropriate for each financial period, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued share capital. The reserve is not available for cash dividends payment, but may be transferred to share capital or used to reduce accumulated deficit in accordance with a resolution of the stockholders’ meeting. (*2) The Company appropriates a certain portion of its retained earnings as reserves for research and development which are provided in order to obtain tax benefits under the Special Tax Treatment Control Law. Among these reserves, the reversed amount according to the terms of related tax laws may be distributed.

(2) The disposition of accumulated deficit for the years ended December 31, 2020 and 2019, is as follows:

(In won) December 31, 2020 December 31, 2019 Unappropriated deficit Loss for the year W (1,428,045,414,646) (1,351,396,855,518) Remeasurements of net defined benefit liabilities 8,388,965,458 9,683,705,596 Financial assets at fair value through other comprehensive

Income - 3,084,458,836 Revaluation reserve 1,938,425,038 196,737,455 Transfer from voluntary reserves Reserve for facilities 1,169,350,139,452 1,338,431,953,631 Undisposed accumulated deficit to be carried forward W (248,367,884,698) -

27. Revenue from Contracts with Customers

(1) Source of revenue for the years ended December 31, 2020 and 2019 are as follows:

(In thousands of won) 2020 2019

Revenue from contracts with customers W 7,017,542,307 7,426,384,421 Revenue from other sources (192,009,995) (327,578,859) Total revenue W 6,825,532,312 7,098,805,562

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

27. Revenue from Contracts with Customers, Continued

(2) Disaggregation of Revenue from Contracts with Customers

The Company derives revenue from the transfer of goods and services over time and at a point in time in the following business segments and locations of external customers for the years ended December 31, 2020 and 2019:

(In thousands of won) 2020 Shipbuilding & offshore E & I Domestic Overseas Domestic Total Segment revenue W 287,301,848 6,710,969,082 22,083,468 7,020,354,398 Inter-segment revenue - - (2,812,091) (2,812,091) Revenue from external customers (*) W 287,301,848 6,710,969,082 19,271,377 7,017,542,307

Timing of revenue recognition: At a point in time W 21,615,398 66,609,545 - 88,224,943 Over time 265,686,450 6,644,359,537 19,271,377 6,929,317,364 W 287,301,848 6,710,969,082 19,271,377 7,017,542,307

(In thousands of won) 2019 Shipbuilding & offshore E & I Domestic Overseas Domestic Total

Segment revenue W 639,735,581 6,763,055,748 28,787,920 7,431,579,249 Inter-segment revenue - - (5,194,828) (5,194,828) Revenue from external customers (*) W 639,735,581 6,763,055,748 23,593,092 7,426,384,421

Timing of revenue recognition: At a point in time W 28,441,504 11,740,992 - 40,182,496 Over time 611,294,077 6,751,314,756 23,593,092 7,386,201,925 W 639,735,581 6,763,055,748 23,593,092 7,426,384,421

(*) Revenues from external customers are derived from shipbuilding contracts, offshore plants and E & I.

(3) Cost of fulfilling a contract recognized as assets

The Company recognized the assets for the commission fee of the shipbuilding and offshore contract. This is shown in the separate statements of financial position as prepaid expense.

(In thousands of won) 2020 2019

Beginning balance W 28,917,367 20,529,446 Increase 5,039,257 25,263,553 Amortization (26,496,656) (29,851,749) Unused amounts reversed (Impairment loss) (3,068,713) 12,976,117 Ending balance W 4,391,255 28,917,367

The commission fee is directly related to the contract, creates resources to be used to execute the contract, and is expected to be recovered. Therefore, the asset is recognized at the performance cost of the contract. The asset is amortized at progress consistent with how revenue is recognized over the period of the particular contract involved. The increase in expected costs for the current period prevented management from fully recovering costs recognized as assets. Consequently, an impairment loss was recognized if the expected amount of the remaining consideration exceeds the asset by deducting direct costs that have not yet been recognized as an impairment loss was recognized.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

28. Breakdown of Expenses by Nature

Breakdown of expenses by nature for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 2019

Changes in inventories W 358,394,459 (88,351,920) Raw-materials and supplies used 3,672,444,029 4,164,620,130 Employee benefit expense 888,289,842 867,924,154 Depreciation and amortization 243,844,825 274,981,137 Service fees 376,386,175 235,267,674 Outsource expenses 1,615,014,717 1,537,044,751 Others 683,193,810 757,403,584 W 7,837,567,857 7,748,889,510

29. Selling, General and Administrative Expenses

Details of selling, general and administrative expenses for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 2019

Employee benefit expense W 78,823,853 57,474,396 Service fees 252,903,059 96,920,403 Warranty expense 38,307,578 24,492,980 Impairment loss 10,324,682 270,110,662 Depreciation and amortization 45,811,122 47,285,418 Research and development expenses 49,557,935 49,684,851 Taxes and dues 6,708,604 8,581,323 Others 39,746,029 44,900,801 W 522,182,862 599,450,834

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

30. Other non-operating Income and Expenses

Other non-operating income and expenses for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 2019

Other non-operating income: Gain on foreign currency transactions W 233,352,745 117,390,513 Gain on foreign currency translation 31,716,919 91,818,674 Gain on valuation of derivatives 402,311,157 251,281,627 Gain on derivatives transactions 219,686,030 325,965,626 Gain on firm commitment valuation 1,276,147 384,462,374 Gain on firm commitment transactions 203,667,342 355,304,716 Others 81,815,781 67,375,539 W 1,173,826,121 1,593,599,069 Other non-operating expenses: Loss on foreign currency transactions W 141,624,225 67,285,609 Loss on foreign currency translation 39,992,279 75,075,868 Loss on valuation of derivatives 1,276,147 431,643,049 Loss on derivative transactions 294,814,165 476,458,972 Loss on firm commitment valuation 385,202,740 239,863,074 Loss on firm commitment transactions 216,390,667 325,963,018 Others 270,802,711 367,390,926 W 1,350,102,934 1,983,680,516

31. Finance Income and Costs

Finance income and costs for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 2019

Finance income: Interest income W 9,839,991 27,836,442 Gain on foreign currency transactions 39,716,477 12,412,764 Gain on foreign currency translation 36,500,663 19,543,701 Gain on valuation of derivatives 6,804,317 33,308,957 Gain on derivatives transactions 225,655,889 205,610,793 W 318,517,337 298,712,657 Finance costs: Interest expenses W 156,644,681 111,750,702 Loss on foreign currency transactions 46,543,922 17,566,288 Loss on foreign currency translation 26,148,552 6,277,661 Loss on valuation of derivatives 36,939,585 33,964,485 Loss on derivative transactions 277,150,559 252,143,287 W 543,427,299 421,702,423

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

32. Income Tax Expense

(1) The components of income tax expense (benefit) for the years ended December 31, 2020 and 2019 are as follows:

(In thousands of won) 2020

Adjustment for prior periods W 3,539,684 Origination and reversal of temporary differences 2,112,656 Income taxes expense recognized directly in other comprehensive income 9,170,754 Income tax expense W 14,823,094

(In thousands of won) 2019

Current tax on profits for the year W 3,247,673 Origination and reversal of temporary differences 182,936,077 Deferred tax due to tax loss carryforwards 2,057,944 Income tax expense W 188,241,694

(2) Reconciliation between profit (loss) before tax and income tax expense (benefit) for the years ended December 31, 2020 and 2019, is as follows:

(In thousands of won) 2020

Loss before income tax W (1,413,222,320) Income tax based on statutory tax rate (341,999,802) Adjustments for: - Tax effect of non-deductible expenses 1,309,636 - Tax effect of non-taxable incomes (6,912) - Adjustments for prior year 16,558,243 - Loss for which deferred tax assets are not recognized 254,515,538 - Unrecognized temporary differences 84,446,391 Income tax expense W 14,823,094 Effective tax rate (*) -

(In thousands of won) 2019

Loss before income tax W (1,163,155,162) Income tax based on statutory tax rate (281,483,549) Adjustments for: - Tax deduction 2,057,944 - Permanent differences and others (13,361,186) - Unrecognized deferred tax assets 481,028,485 Income tax expense W 188,241,694 Effective tax rate (*) -

(*) As loss before income tax for the years ended December 31, 2020 and 2019 occurred, the Company did not calculate effective tax rate.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

32. Income Tax Expense, Continued

(3) Changes in the accumulated temporary differences and related deferred tax assets and liabilities are as follows:

(In thousands of won) 2020 Temporary differences Deferred tax assets (liabilities) Increase Beginning (decrease) Ending Beginning Ending

Post-employment benefit obligation W 39,370,435 46,529,668 85,900,103 9,527,645 20,787,825 Accrued interest (7,143,096) 6,813,579 (329,517) (1,728,629) (79,743) Inventories 141,374,190 309,985,607 451,359,797 34,212,554 109,229,071 Property, plant and equipment (181,602,297) 54,340,379 (127,261,918) (43,947,756) (30,797,384) Subsidiaries, associates and joint ventures (107,335,478) 129,026,470 21,690,992 (5,366,774) 1,084,550 Right-of-use assets (53,007,727) 53,007,727 - (12,827,870) - Lease liabilities 54,411,366 (20,049,175) 34,362,191 13,167,551 8,315,650 Provision for impairment of receivables 381,936,626 7,016,583 388,953,209 92,428,663 94,126,677 Gain on foreign currency translation 31,682,565 23,713,418 55,395,983 7,667,181 13,405,828 Accrued expenses 155,802,578 (47,149,484) 108,653,094 37,704,224 26,294,049 Provision for construction losses 115,900,040 3,149,576 119,049,616 28,047,810 28,810,007 Provision for warranty 331,898,557 2,004,841 333,903,398 80,319,451 80,804,622 Provisions 401,142,141 321,339,560 722,481,701 97,076,398 174,840,572 Derivatives 346,068,092 (314,097,007) 31,971,085 83,748,478 7,737,003 Unused tax losses 3,285,827,579 770,710,844 4,056,538,423 795,170,274 981,682,298 Others 215,135,586 (8,818,912) 206,316,674 52,062,812 49,928,635 W 5,151,461,157 1,337,523,674 6,488,984,831 1,267,262,012 1,566,169,660 Deferred tax charged directly to (deducted from) stockholder s' equity (1,038,370,573) 40,453,002 (997,917,571) (251,285,679) (241,496,052) Tax deduction 13,494,976 198,543 13,693,519 13,494,976 13,693,519 W 4,126,585,560 1,378,175,219 5,504,760,779 1,029,471,309 1,338,367,127 Unrecognized deferred tax assets (liabilities) (2,354,896,248) (1,398,046,815) (3,752,943,063) (574,410,655) (885,419,129) Recognized deferred tax assets (liabilities) W 1,771,689,312 (19,871,596) 1,751,817,716 455,060,654 452,947,998

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

32. Income Tax Expense, Continued

(3) Changes in the accumulated temporary differences and related deferred tax assets and liabilities are as follows, continued:

(In thousands of won) 2019 Temporary differences Deferred tax assets (liabilities) Increase Beginning (decrease) Ending Beginning Ending

Post-employment benefit obligation W 65,327,588 (25,957,153) 39,370,435 15,809,276 9,527,645 Accrued interest (3,461,097) (3,681,999) (7,143,096) (837,585) (1,728,629) Inventories 75,857,114 65,517,076 141,374,190 18,357,422 34,212,554 Property, plant and equipment (203,407,212) 21,804,915 (181,602,297) (49,224,545) (43,947,756) Subsidiaries, associates and joint ventures (110,788,022) 3,452,544 (107,335,478) (5,539,401) (5,366,774) Right-of-use assets - (53,007,727) (53,007,727) - (12,827,870) Lease liabilities - 54,411,366 54,411,366 - 13,167,551 Provision for impairment of receivables 135,478,130 246,458,496 381,936,626 32,785,707 92,428,663 Gain on foreign currency translation 24,449,819 7,232,746 31,682,565 5,916,856 7,667,181 Accrued expenses 130,640,833 25,161,745 155,802,578 31,615,082 37,704,224 Provision for construction losses 176,899,096 (60,999,056) 115,900,040 42,809,581 28,047,810 Provision for warranty 321,019,648 10,878,909 331,898,557 77,686,755 80,319,451 Provisions 462,176,823 (61,034,682) 401,142,141 111,846,791 97,076,398 Derivatives 10,525,759 335,542,333 346,068,092 2,547,234 83,748,478 Unused tax losses 2,635,864,198 649,963,381 3,285,827,579 637,879,136 795,170,274 Others 221,722,038 (6,586,452) 215,135,586 53,656,733 52,062,812 W 3,942,304,715 1,209,156,442 5,151,461,157 975,309,042 1,267,262,012 Deferred tax charged directly to (deducted from) stockholder s' equity (1,134,684,214) 96,313,641 (1,038,370,573) (274,593,580) (251,285,679) Tax deduction 13,323,955 171,021 13,494,976 13,323,955 13,494,976 W 2,820,944,456 1,305,641,104 4,126,585,560 714,039,417 1,029,471,309 Unrecognized deferred tax assets (liabilities) (322,245,697) (2,032,650,551) (2,354,896,248) (97,292,642) (574,410,655) Recognized deferred tax assets (liabilities) W 2,498,698,759 (727,009,447) 1,771,689,312 616,746,775 455,060,654

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

32. Income Tax Expense, Continued

(4) Income tax related to components of other comprehensive income as of December 31, 2020 and 2019, are as follows:

(In thousands of won) December 31, 2020 December 31, 2019

Gain (Loss) on valuation of financial assets at fair value through other comprehensive income W (4,536,171) (2,159,119) Remeasurements (17,471,257) (14,792,986) Gain (Loss) on valuation of derivatives 48,096,625 35,894,710 Revaluation of land (267,585,249) (270,228,284) W (241,496,052) (251,285,679)

(5) Details of unrecognized deductible (taxable) temporary differences as deferred tax assets (liabilities) as of December 31, 2020 and 2019, are as follows:

(In thousands of won) December 31, 2020 December 31, 2019 Reason

Interests in subsidiaries W 127,561,575 (7,980,045) No plan for disposal Deductive temporary differences 1,070,257,347 849,687,954 Uncertainty of future taxable profit Loss carried forward (2025-2035 reversal) 2,552,883,088 1,501,165,988 Uncertainty of future taxable profit Carried forward tax credit (2025-2030 reversal) 2,241,053 12,022,351 Uncertainty of future taxable profit W 3,752,943,063 2,354,896,248

(6) The analysis of deferred tax assets and liabilities as of December 31, 2020 and 2019, is as follows:

(In thousands of won) December 31, 2020 December 31, 2019 Within 1 year After 1 year Within 1 year After 1 year

Deferred tax assets W 11,369,695 928,310,741 18,785,059 925,716,848 Deferred tax liabilities (79,743) (486,652,695) (1,728,629) (487,712,624) W 11,289,952 441,658,046 17,056,430 438,004,224

(7) Since it is probable that future taxable profit will be available against which the unused tax losses can be utilized, the Company recognized the related deferred tax assets.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

33. Loss per Share

(1) Loss per ordinary share

Loss per ordinary share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the year excluding ordinary shares purchased by the Company and held as treasury shares.

Loss per ordinary share for the years ended December 31, 2020 and 2019, is as follows:

(In thousands of won) 2020 2019

Loss attributable to ordinary equity holders of the Company (*1) W (1,427,773,953) (1,351,139,964) Weighted average number of ordinary shares outstanding (in shares) (*2) 604,035,571 604,035,571 Loss per share (in won) W (2,364) (2,237)

(2) Loss per preferred share

Loss per preferred share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of preferred shares outstanding during the year excluding preferred shares purchased by the Company and held as treasury shares.

Loss per preferred share for the years ended December 31, 2020 and 2019, is as follows:

(In thousands of won) 2020 2019

Loss attributable to preferred equity holders of the Company (*1) W (271,462) (256,892) Weighted average number of preferred shares outstanding (in shares) (*2) 114,845 114,845 Loss per preferred share (in won) W (2,364) (2,237)

(*1) Profit (loss) attributable to ordinary equity holders of the Company and profit (loss) attributable to preferred equity holders of the Company for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 2019

Loss attributable to equity holders of the Company W (1,428,045,415) (1,351,396,856) Adjustments 271,462 256,892 Loss attributable to ordinary equity holders of the Company W (1,427,773,953) (1,351,139,964) Loss attributable to preferred equity holders of the Company W (271,462) (256,892)

(*2) Weighted average number of ordinary shares and preferred shares outstanding for the years ended December 31, 2020 and 2019, are as follows:

(In shares) 2020 2019

Ordinary shares: Beginning 604,035,571 604,035,571 Weighted average number of ordinary shares outstanding 604,035,571 604,035,571 Preferred shares: Beginning 114,845 114,845 Weighted average number of preferred shares outstanding 114,845 114,845

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

34. Cash Generated from Operations

(1) Cash generated from operations for the years ended December 31, 2020 and 2019 are as follows:

(In thousands of won) 2020 2019

Loss for the year W (1,413,222,320) (1,163,155,162) Adjustments for: Post-employment benefit 54,576,027 59,206,724 Bad debt expenses (reversal) 10,115,089 269,957,605 Loss on valuation of inventories 309,985,608 66,246,076 Gain on valuation of inventories - (729,000) Loss on disposal of subsidiaries, associates, and joint ventures - 5,662 Impairment loss on subsidiaries, associates, and joint ventures 2,553,080 2,658,187 Gain on disposal of subsidiaries, associates, and joint ventures - (14,408) Loss on valuation of financial assets measured at FVTPL - 37,741 Gain on valuation of financial assets measured at FVTPL (192,937) (99,532) Miscellaneous losses 117,659,936 59,870,152 Miscellaneous gains (52,113,533) - Service fees 287,695,349 - Gain on foreign currency translation (68,217,582) (111,362,375) Loss on foreign currency translation 66,140,831 81,353,529 Depreciation 180,147,553 197,580,809 Depreciation of right-of-use asset 40,902,777 58,308,707 Impairment loss of right-of-use asset 32,394,651 - Gain on disposal of property, plant and equipment (1,377,858) (189,547) Loss on disposal of property, plant and equipment 3,959,576 4,449,485 Impairment loss of plant and equipment 69,362,930 - Amortization 22,794,495 19,091,621 Loss on disposal of intangible asset - 66,000 Impairment loss of intangible asset 775,503 - Gain on termination of lease (5,121) - Gain and Loss on derivative instruments transaction and valuation (244,276,937) 378,042,790 Gain and Loss on firm commitment transaction and valuation 396,649,918 (173,940,998) Interest income (20,072,947) (41,138,811) Interest expenses 156,644,681 111,750,702 Dividend income (160,020) (367,327) Other income and expenses 135,807 124,903 Contributions 19,000,000 - 1,385,076,876 980,908,695

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

34. Cash Generated from Operations, Continued

(1) Cash generated from operations for the years ended December 31, 2020 and 2019 are as follows, continued:

(In thousands of won) 2020 2019

Changes in assets and liabilities: Trade receivables W (86,140,916) 248,740,554 Contract assets 331,159,146 (449,004,091) Other receivables 21,166,634 (11,522,863) Advance payments (63,920,600) 32,837,357 Prepaid expenses 80,532,798 37,450,556 Inventories 208,380,052 (154,419,925) Other financial assets 3,791,498 (3,713,080) Other current assets 15,157,631 (10,241,301) Long-term prepaid expenses (56,471,163) (37,029,722) Trade payables (221,714,791) 496,708,406 Other payables 30,024,387 1,961,942 Contract liabilities 164,397,453 (641,356,501) Accrued expenses (9,055,606) (11,457,162) Other current liabilities (11,376,262) (9,990,247) Provision for construction losses 3,450,188 (60,999,056) Provision for construction warranty 4,078,040 10,878,909 Net defined benefit liabilities (74,629,929) (76,480,054) Provisions (95,786,154) (105,228,214) Derivative financial instruments (333,419,722) (189,920,927) Firm commitment (14,706,415) 236,490,130 Other non-current financial liabilities 6,679,009 20,609,321

(98,404,722) (675,685,968) Cash generated from operations W (126,550,166) (857,932,435)

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

34. Cash Generated from Operations, Continued

(2) The Company’s separate statements of cash flows are prepared using the indirect method. The significant transactions without inflow and outflow of cash for the years ended December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 2019

Transfer of current portion of long-term borrowings W 1,284,450,000 1,032,365,000 Transfer of current portion of debentures 289,890,240 299,739,782 Transfer of construction in-progress to other property, plant and equipment 104,902,751 52,443,600

(3) Changes in liabilities arising from financial activities for the years ended December 31, 2020 and 2019, are as follows:

Net cash inflow (outflow) from Non-cash January 1, financing inflow December 31, (In thousands of won) 2020 activities (outflow) 2020

Short-term borrowings W 1,634,926,163 212,639,292 (35,755,224) 1,811,810,231 Current-portion of long

term debts 1,332,104,782 (1,310,099,000) 1,552,334,458 1,574,340,240 Debentures 269,736,576 228,527,990 (289,595,734) 208,668,832 Long-term borrowings 431,802,000 1,938,954,000 (1,271,956,000) 1,098,800,000 Lease liabilities 54,473,770 (40,333,754) 20,264,679 34,404,695 W 3,723,043,291 1,029,688,528 (24,707,821) 4,728,023,998

Net cash inflow (outflow) from Non-cash January 1, financing inflow December 31, (In thousands of won) 2019 activities (outflow) 2019

Short-term borrowings W 1,303,590,547 (120,759,185) 452,094,801 1,634,926,163 Current-portion of long

term debts 696,789,188 (708,232,000) 1,343,547,594 1,332,104,782 Debentures 84,851,892 484,247,510 (299,362,826) 269,736,576 Long-term borrowings 546,096,000 929,477,000 (1,043,771,000) 431,802,000 Lease liabilities - (56,905,068) 111,378,838 54,473,770 W 2,631,327,627 527,828,257 563,887,407 3,723,043,291

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

35. Financial risk management

The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. The Company uses derivative financial instruments to hedge certain risk exposures.

Risk management is carried out by a central treasury department under policies approved by the board of directors. The Company treasury identifies, evaluates and hedges financial risks in close co-operation with the Company’s operating units. The board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

35.1 Market risk

(1) Foreign exchange risk

The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar and Euro. Foreign exchange risk arises from firm commitment and future commercial transactions, recognized assets and liabilities.

Management has set up a policy to require the Company to manage their foreign exchange risk against their functional currency.

The Company’s risk management policy is to hedge of the anticipated cash flows in foreign currencies related to firm commitment and highly probable forecasted transactions, and they qualify as firm commitment and highly probable forecasted transactions for hedge accounting purposes.

The Company uses forward contracts and currency swaps to hedge its foreign exchange risk arising from all anticipated cash flows in foreign currencies. Therefore, the fluctuation in value of major foreign currencies has almost no impact on profit and loss.

(2) Price risk

The Company is exposed to equity securities price risk because of investments held by the Company and classified on the statement of financial position as financial assets at fair value through other comprehensive income. The market values for the Company’s listed equity investments as of December 31, 2020 and 2019, are W1,109 million and W1,071 million, respectively (Note 15).

If there is a change in price of equity investment by 30%, the amount of other comprehensive income changes for the years ended December 31, 2020 and 2019, would be W252 million and W244 million, respectively.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

35. Financial risk management, Continued

35.1 Market risk, Continued

(3) Interest rate risk

The Company’s cash flow interest rate risk arises from borrowings. Borrowings issued at variable rates expose the Company to cash flow interest rate risk which is partially offset by cash equivalents held at variable rates. Also, borrowings and debentures issued at fixed rates expose the Company to fair value interest rate risk.

The Company analyzes its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Company calculates the impact on profit and loss of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run only for liabilities that represent the major interest-bearing positions.

Based on the simulations performed, 0.1% of interest rate fluctuation will have W339 million (2019: W3,669 million) of increase or decrease impact on the profit or loss.

35.2 Credit risk

Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables, contract assets and committed transactions.

(1) Risk management

Credit risk is managed on a company basis. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted.

If customers are independently rated, these ratings are used. If there is no independent rating, the credit quality of the customer is evaluated taking into account its financial position, past experience and other factors. The management regularly reviews the credit assessment of the customers.

Accordingly, credit exposure to the Company is expected to be restricted.

(2) Impairment of financial assets

While cash and cash equivalents and short-term and long-term financial instruments including deposits and others are also subject to the impairment requirement, the identified impairment loss was immaterial. The Company assesses trade receivables and contract assets individually for which objective evidence of impairment identifies and applies a simplified approach for classifying the remaining receivables as collective receivables and recognizing lifetime expected credit losses as loss allowances.

Other financial assets measured at amortized cost include loans and other receivables and others. For trade receivables and contract assets that are equally significant, the Company assesses them on an individual basis. Other items are considered to have low credit risk, and the 12 months expected losses were recognized as loss allowance.

The maximum exposure to credit risk at the end of the reporting date is the carrying value of the financial assets and includes guaranteed amounts of W209,560 million (2019: W199,306 million) and W80,734 million (2019: W301,655 million) relating to the financial guarantee contract and performance guarantees provided, respectively.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

35. Financial risk management, Continued

35.3 Liquidity risk

The Company monitors rolling forecasts of the Company’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Company does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Company’s debt financing plans, covenant compliance, compliance with internal financial ratio targets and, if applicable external regulatory or legal requirements – for example, currency restrictions.

The analysis of the Company’s liquidity risk as of December 31, 2020 and 2019, are as follows:

(In thousands of won) December 31, 2020 Less than More than 1 year 1-2 years 2 years Total

Derivative financial assets W 271,790,073 92,682,968 2,792,408 367,265,449 Borrowings 1,870,965,844 198,332,714 1,001,403,014 3,070,701,572 Current portion of long-term debts 1,597,727,792 - - 1,597,727,792 Debentures 7,923,000 204,187,452 9,074,564 221,185,016 Lease liabilities 16,949,260 11,443,856 7,779,574 36,172,690 Trade payables and other financial

liabilities 661,980,325 49,465,015 - 711,445,340 Derivative financial liabilities 221,998,853 35,286,635 121,104 257,406,592 Payment guarantee contracts and

others (*) 290,294,300 - - 290,294,300 W 4,939,629,447 591,398,640 1,021,170,664 6,552,198,751

(*) Payment guarantee contracts present maximum amount to be paid upon principal debtor’s claim(Note 23).

(In thousands of won) December 31, 2019 Less than More than 1 year 1-2 years 2 years Total

Derivative financial assets W 120,246,428 68,792,186 11,527,649 200,566,263 Borrowings 1,673,523,939 321,993,828 116,551,253 2,112,069,020 Current portion of long-term debts 1,363,076,738 - - 1,363,076,738 Debentures 10,314,000 264,904,932 10,377,425 285,596,357 Lease liabilities 25,269,379 14,337,763 18,280,707 57,887,849 Trade payables and other financial

liabilities 914,180,636 42,786,004 - 956,966,640 Derivative financial liabilities 414,832,926 169,216,792 24,161,208 608,210,926 Payment guarantee contracts and

others 500,960,885 - - 500,960,885 W 5,022,404,931 882,031,505 180,898,242 6,085,334,678

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

35. Financial risk management, Continued

35.3 Liquidity risk, Continued

Details of the Company’s recognized financial assets and liabilities subject to enforceable master netting arrangements as of December 31, 2020, are as follows:

Presented in the statement of Amounts not (In thousands of won) financial position offset Net amount

Derivative financial assets W 367,265,449 329,334,304 37,931,145 Derivative financial liabilities 257,406,592 230,693,560 26,713,032

35.4 Capital risk management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for stockholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company may adjust the amounts of dividends paid to stockholders, return capital to stockholders, and issue new shares or sell assets to reduce debt.

The Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘current and non-current borrowings’ as shown in the statements of financial position) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the statement of financial position plus net debt.

The gearing ratios as of December 31, 2020 and 2019, are as follows:

(In thousands of won) December 31, 2020 December 31, 2019

Total borrowings (Note 21) W 4,693,619,303 3,668,569,521 Less: cash and cash equivalents (Note 4) 943,166,363 319,472,206 Net debts 3,750,452,940 3,349,097,315 Total equity 3,687,160,105 5,143,930,443 Total capital W 7,437,613,045 8,493,027,758 Gearing ratio 50.43% 39.43%

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

36. Segment Information

The strategic steering management has determined the operating segments, and reviewed the operating information of segments for the purposes of allocating resources and assessing performance.

(1) General information by business segments

Segment Sales Type Products and Services Main Customer Sales ratio (%)

Shipbuilding & LNG, Container ship, FLNG Foreign ship- offshore Product and others owners, other 99.72 Construction Engineering works, business E&I Product construction and others owners, other 0.28 100.00

(2) Financial information by business segments

(In thousands of won) 2020 Shipbuilding & offshore E&I Total 1. Sales W Gross sales 6,806,260,935 22,083,468 6,828,344,403 Inter-segment sales - (2,812,091) (2,812,091) Net sales 6,806,260,935 19,271,377 6,825,532,312 2. Operating loss (981,319,646) 6,300,153 (975,019,493) 3. Property, plant and equipment & intangible assets and others 4,941,704,778 10,059,832 4,951,764,610 4. Depreciation &

amortization and others 243,726,970 117,855 243,844,825

(In thousands of won) 2019 Shipbuilding & offshore E&I Total 1. Sales W Gross sales 7,075,212,470 28,787,920 7,104,000,390 Inter-segment sales - (5,194,828) (5,194,828) Net sales 7,075,212,470 23,593,092 7,098,805,562 2. Operating loss (594,824,233) (6,573,371) (601,397,604) 3. Property, plant and equipment & intangible assets and others 5,199,762,795 10,274,928 5,210,037,723 4. Depreciation &

amortization and others 274,754,872 226,265 274,981,137

Since most of the debts are jointly utilized debt, the Company's management does not separately report with segment liabilities.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

36. Segment Information, Continued

(3) Reconciliation between segment operating profit and operating profit

(In thousands of won) 2020 2019

Total segment operating loss W (975,019,493) (601,397,604) Internal income/expense and other operating income/expense due to inter transactions - - Undistributed selling and administrative income/expenses (*) (37,016,052) (48,686,345) Operating loss per statement of profit or loss (1,012,035,545) (650,083,949)

(*) Undistributed selling and administrative expenses are not distributed to segments since they are centrally incurred costs.

(4) There is one customer (2019: two customers) which contributes more than 10% of the Company’s revenue and its revenue amounts to W829,674 million and W2,210,887 million for the years ended December 31, 2020 and 2019, respectively.

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

37. Related Party Transactions

(1) The subsidiaries as of December 31, 2020 and 2019, are as follows:

Percentage of ownership (%) December 31, 2020 December 31, 2019

Samsung Heavy Industries (Ningbo) Co., Ltd. 100 100 Samsung Heavy Industries (Rongcheng) Co., Ltd. 100 100 Rongcheng Gaya Heavy Industries Co., Ltd. 100 100 Samsung Heavy Industries India Pvt. Ltd. 100 100 Camellia Consulting Corporation 100 100 Samsung Heavy Industries(M) SDN.BHD 100 100 Samsung Heavy Industries Nigeria Ltd 100 100 SHI-MCI FZE 70 70 SHI Mozambique LDA 100 100

(2) Sales and purchases with subsidiaries and other related parties for the years ended December 31, 2020 and 2019, and outstanding balances arising from sales and purchases of goods and services as of December 31, 2020 and 2019, are as follows:

(In thousands of won) 2020 December 31, 2020 Trade Purchases, receivables, Trade payables, Sales, others others others others Subsidiaries: Samsung Heavy Industries (Ningbo) Co., Ltd. W 6,348,034 98,961,411 3,542,785 4,483,617 Samsung Heavy Industries (Rongcheng) Co., Ltd. 721,790 110,651,852 3,352,568 10,404,751 Rongcheng Gaya Heavy Industries Co., Ltd. - 14,964,289 287,844 1,873,980 Samsung Heavy Industries India Pvt. Ltd. - 9,212,868 - - Samsung Heavy Industries(M) SDN.BHD 57,016 - - - Samsung Heavy Industries Nigeria Ltd 2,917,661 - 118,385,796 - SHI-MCI FZE 115,738 - 4,286,300 - Other related parties (*): Samsung Fire & Marine Insurance Co., Ltd. W 24,723,665 24,702,710 225,808,940 1,757,171 Samsung Life Insurance Co., Ltd. 11,013,064 921,030 239,588,089 - Samsung C & T Corporation and others 1,629,312 179,216,946 5,097,993 54,057,722

W 47,526,280 438,631,106 600,350,315 72,577,241

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

37. Related Party Transactions, Continued

(In thousands of won) 2019 December 31, 2019 Trade Purchases, receivables, Trade payables, Sales, others others others others Subsidiaries: Samsung Heavy Industries (Ningbo) Co., Ltd. W 1,013,605 112,778,639 17,253,576 9,426,110 Samsung Heavy Industries (Rongcheng) Co., Ltd. 384,423 134,079,731 10,491,338 4,898,929 Rongcheng Gaya Heavy Industries Co., Ltd. - 17,564,100 1,240,223 1,842,975 Samsung Heavy Industries India Pvt. Ltd. - 11,560,811 - - Samsung Heavy Industries Nigeria Ltd 3,318,698 - 138,316,125 - SHI-MCI FZE 266,980 - 4,167,508 - Other related parties (*): Samsung Fire & Marine Insurance Co., Ltd. W 26,786,019 16,472,672 223,206,863 1,924,378 Samsung Life Insurance Co., Ltd. 18,103,461 993,603 228,989,380 2,604,974 Samsung C & T Corporation and others 1,886,024 325,221,575 4,963,967 25,825,395

W 51,759,210 618,671,131 628,628,980 46,522,761

(*) Although the entity is not the related party of the Company in accordance with K-IFRS No.1024, the entity belongs to a large enterprise group in accordance with the Monopoly Regulation and Fair Trade Act. As of December 31, 2019, the effect of contract liabilities amounts to W2,605 million is included due to applying proceeds sales. Related to defined benefit plan, trade receivables and others included defined benefit pension asset which is paid in Samsung Life Insurance Co., Ltd. and others.

(3) The significant financial transactions between the Company and its subsidiaries and other related parties are as follows:

(In thousands of won) 2020 2019 Loan Collection Loan Collection

Samsung Heavy Industries(M) SDN.BHD W 2,449,000 2,449,000 - -

SAMSUNG HEAVY INDUSTRIES CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2020 and 2019

37. Related Party Transactions, Continued

(4) Payment guaranteed provided by the Company

Payment guarantees provided by the Company for the funding sources of the related parties as of December 31, 2020, are as follows and no payment guarantees are provided by the related parties.

(In thousands of US dollars, In thousands of Chinese yuan) Executed amount Guaranteed amount Subsidiaries Guaranteed by USD CNY USD CNY Remark SC - 70,000 17,000 - Borrowings Samsung Heavy Industries DGB Daegu Bank

(Ningbo) Co., Ltd. (*) - 20,000 - 120,000 Borrowings Woori Bank (*) - 50,000 - 60,000 Borrowings SC 70,000 40,000 78,000 - Borrowings Samsung Heavy Industries KEB Hana bank - 80,000 - 96,000 Borrowings (Rongcheng) Co., Ltd. DGB Daegu Bank

(*) - 20,000 - 132,000 Borrowings

(*) Short-term financial instruments are pledged as collateral for subsidiary borrowings from DGB Daegu bank and Woori Bank (Note 5).

Other than the payment guarantees above, the Company provides payment guarantee of USD 71 million and MYR 12 million to the financial institutions in relation to the subsidiary’s performance guarantees to the financial institutions up to USD 10 million in relation to currency forward contracts (Note 23).

(5) Key Management Compensation

For the year ended December 31, 2020, key management compensation consists of W1,749 million (2019: W1,477 million) in short-term benefits and W310 million (2019: W261 million) in long-term, severance and other benefits which are highly probable to be paid in the future.

38. Subsequent Event

The Company recognized an additional provision of W287,695 million as of December 31, 2020, as a result of losing an arbitration related to the cancellation of the ship contract and compensation for damages on March 5, 2021.

Notice to Readers

This report is annexed in relation to the audit of the separate financial statements as of December 31, 2020 and the audit of internal control over financial reporting pursuant to Article 8-7 of the Act on External Audit for Stock Companies of the Republic of Korea.

Independent Auditors’ Report on Internal Control over Financial Reporting

Based on a report originally issued in Korean

To the Stockholders and Board of Directors of Samsung Heavy Industries Co., Ltd.:

Opinion on Internal Control over Financial Reporting

We have audited Samsung Heavy Industries Co., Ltd.’s (the “Company”) internal control over financial reporting (“ICFR”) as of December 31, 2020 based on the criteria established in the Conceptual Framework for Designing and Operating ICFR (“ICFR Design and Operation Framework”) issued by the Operating Committee of Internal Control over Financial Reporting in the Republic of Korea (the “ICFR Committee”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on ICFR Design and Operation Framework.

We also have audited, in accordance with Korean Standards on Auditing (KSAs), the separate financial statements of the Company, which comprise the separate statement of financial position as of December 31, 2020, the separate statements of loss, comprehensive loss, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information, and our report dated March 11, 2021 expressed an unqualified opinion on those separate financial statements.

Basis for Opinion

We conducted our audit in accordance with KSAs. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Internal Control over Financial Reporting section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the internal control over financial reporting in Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Management and Those Charged with Governance for the Internal Control over Financial Reporting

The Company’s management is responsible for designing, operating and maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Reports on the Operations of Internal Control over Financial Reporting. Those charged with governance are responsible for overseeing the Company’s internal control over financial reporting.

Auditors’ Responsibilities for the Audit of the Internal Control over Financial Reporting

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with KSAs. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Definition and Limitations of Internal Control over Financial Reporting

A Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Korean International Financial Reporting Standards (“K-IFRS”). A Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with K-IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness 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.

The engagement partner on the audit resulting in this independent auditors’ report is Chul Young Kim.

Seoul, Korea March 11, 2021

This report is effective as of March 11, 2021, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the internal control over financial reporting. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

Report on the Operations of Internal Control over Financial Reporting

Based on a report originally issued in Korean

To the Stockholders and Board of Directors and Audit Committee of Samsung Heavy Industries Co., Ltd.:

We, as the Chief Executive Officer (“CEO”) and the Internal Accounting Control Officer (“IACO”) of Samsung Heavy Industries Co., Ltd. (the “Company”), assessed the operating status of the Company’s Internal Control over Financial Reporting (“ICFR”) for the year ended December 31, 2020.

Design and operation of ICFR is the responsibility of the Company’s management, including the Chief Executive Officer and the Internal Accounting Control Officer.

We evaluated whether the Company effectively designed and operated its ICFR to prevent and detect errors or frauds which may cause a misstatement in financial statements to ensure preparation and disclosure of reliable financial information.

We used the ‘Conceptual Framework for Designing and Operating Internal Control over Financial Reporting issued by the Operating Committee of Internal Control over Financial Reporting (the “ICFR Committee”) as the criteria for design and operation of the Company’s ICFR. And we conducted an evaluation of ICFR based on the ‘Guideline for Evaluating and Reporting Effectiveness of Internal Control over Financial Reporting’ established by the ICFR Committee.

Based on our assessment, we concluded that the Company’s ICFR is designed and operated effectively as of December 31, 2020, in all material respects, in accordance with the ‘Conceptual Framework for Designing and Operating Internal Control over Financial Reporting

We certify that this report does not contain any untrue statement of a fact or omit to state a fact necessary to be presented herein. We also certify that this report does not contain or present any statements which might cause material misunderstandings of the readers, and we have reviewed and verified this report with sufficient care.

Bae, Jin Han Internal Accounting Control Officer

Nam, Joon Ou Chief Executive Officer

February 2, 2021