HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2018
(With Independent Auditors’ Report Thereon)
Contents
Page
Independent Auditors’ Report 1
Consolidated Statements of Financial Position 6
Consolidated Statements of Comprehensive Income 10
Consolidated Statements of Changes in Equity 12
Consolidated Statements of Cash Flows 14
Notes to the Consolidated Financial Statements 18
KPMG SAMJONG Accounting Corp. Tel +82 (2) 2112 0100 152, Teheran-ro, Gangnam-gu, Seoul 06236 Fax +82 (2) 2112 0101 Republic of Korea www.kr.kpmg.com
Independent Auditors’ Report
Based on a report originally issued in Korean
The Board of Directors and Shareholders HYUNDAI ENGINEERING CO., LTD.:
Opinion We have audited the consolidated financial statements of HYUNDAI ENGINEERING CO., LTD and its subsidiaries (the “Group”), which comprise the consolidated statements of financial position as of December 31, 2018, the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2018, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Korean International Financial Reporting Standards (“K-IFRS”).
Basis for Opinion We conducted our audits 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 Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in the 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 related to industry with production-to-order transactions
Pursuant to “Practical Guide to Korean Standards on Auditing 2016-1(amended in 2018)”, Key audit matters related to entities engaged in production-to-order transactions are those matters that, in our professional judgment and communication with those charged with governance, were of most significance in our audit of the consolidated financial statements as of and for the year ended December 31, 2018. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have considered the result of the audit procedures for the following key audit matters in forming our audit opinion on the consolidated financial statements of the Group.
A. General Information Information relevant to the key audit matters related to the industry with production-to-order transactions described in our audit report are as follows:
As explained in the Note 2 to the consolidated financial statements, the Group recognizes contract revenue and contract costs as revenue and expense, respectively, based on the percentage of completion at the end of the reporting period in accordance with K-IFRS 1115 ‘Revenue from Contracts with Customers’ when the outcome of a performance obligation can be reliably estimated. The percentage of completion is calculated based on the
1 ratio of contract costs incurred to date to estimated total costs, excluding costs incurred that do not reflect the progress of completion. Due from customers is the amount of the costs incurred plus recognized profits (less recognized losses) in excess of progress billings to customers. Due to customers is the amount of progress billings to customers in excess of the costs incurred plus recognized profits (less recognized losses). However, if the Group is not able to reasonably estimate the outcome of a performance obligation, the Company recognizes revenue only to the extent of the costs incurred that are likely to be recoverable.
B. Revenue recognition based on the input method As 87% of total revenue is based on the input method, the Group is exposed to a risk of material misstatement of contract revenue if the method to measure the stage of completion does not reliably measure the work performed.
As explained in Note 21 to the consolidated financial statements, changes in estimated total contract revenue and contract costs amount to W484,218 million and W299,655 million, respectively, for the year ended December 31, 2018. Due to such changes, the profit for the year ended December 31, 2018 has increased by W156,073 million, and the future profit or loss is estimated to increase by W28,490 million.
If uncertainty in estimation increase the changes in total expected contract revenue and costs may have a negative impact on the profit or loss for the current year. Therefore, we have identified revenue recognition based on the input method as a key audit matter.
We have performed the following audit procedures regarding the revenue recognized by the input method for the year ended December 31, 2018.
① Reviewed the Group’s accounting policy for revenue recognition whether it is in conformity with the relevant accounting standard. ② Reviewed the accounting policy for revenue recognition applied to major projects to assess whether the accounting policy applied conforms with the relevant accounting standard. ③ Inquired of and performed analytical review on the progress and significant changes for major projects. ④ Performed analytical review on major financial indicators including contracts amount and estimated cost as well as cost ratio, ratio of dues from customers for contract work. ⑤ Inquired of any contract modifications in major projects and reviewed the contracts for new projects.
C. Uncertainty of estimated total contract costs As described in the Note 3 to the consolidated financial statements, total contract costs are estimated based on future estimates of material costs, labor costs, construction period and others. Considering increasing uncertainties of construction contracts due to factors such as long-term construction periods, modification to work, changes in construction environment, fluctuation in material costs and others, we have identified uncertainty of estimated total contract costs as a Key audit matter.
We have performed the following audit procedures regarding the impact of uncertainty in the Group’s estimated total contract costs in the consolidated financial statements for the year ended December 31, 2018.
① Compared total contract costs by reporting periods and inquired of construction with significant changes. ② For constructions completed in the current year, compared the accumulated costs incurred with the estimated total contract costs to identify any significant changes and inspected supporting documents, if necessary. ③ Inspected whether review and approval was obtained from proper authorized person for changes in estimated total contract costs for selected samples. ④ Inquired of any construction delays in projects and whether such change has been reflected estimated total contract costs and inspected supporting documents, if necessary. ⑤ Assessed the reliability of estimated total contract costs for two overseas construction sites by using an external expert in industries with production-to-order transactions. ⑥ Performed site visits for ten overseas construction sites and nine domestic construction sites.
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D. Measuring progress of construction projects As described in Note 21 to the consolidated financial statement, changes in estimated total contract costs amount to W299,655 million for the year ended December 31, 2018. As there is uncertainty in the estimation of total contract costs, we have identified measurement of percentage of completion as a key audit matter.
We have performed the following audit procedures regarding estimated total contract costs and accumulated costs incurred that impacts the measurement of percentage of completion.
① Recalculated the percentage of completion of the Group. ② Identified any significant difference between the progress reported to the customer and the percentage of completion used for accounting purpose and obtained relevant evidence, if necessary. ③ Tested the existence and the cut off of costs incurred and allocation of costs incurred to each project. ④ Assessed the accuracy of contract costs data for each construction contracts by using our internal IT audit team. - Examined the reasons for costs incurred before the contract date for new construction projects commenced during the year. - Examined the sub-ledger such as costs of sales to identify journal entries of costs transferred between project with the same amount in debit and credit.
E. Collectability of due from customers Due from customers is the amount of the costs incurred plus recognized profits (less recognized losses) in excess of progress billings to customers and due to customers is the amount of progress billings to customers in excess of the costs incurred plus recognized profits (less recognized losses).
Due from customers is a significant account as it comprises 8.6% of the total assets and is used as a key indicator when assessing the financial soundness in the construction industry. We have identified collectability of due from customers as a key audit matter as there is a risk of material misstatement in assets if the due from customers is not recoverable.
We have performed the following audit procedure regarding the collectability of due from customers.
① Assessed reasons for increase in due from customers and its collectability. ② Inquired of payment terms of major construction projects and examined the respective contracts. ③ Inquired of the existence of any long-term due from customers, the expected schedule for transferring to accounts receivable and billing schedule.
F. Accounting for the variation of construction contracts As described in Note 3 to the consolidated financial statements, the Group measures total contract revenue at the initial amount of revenue agreed in the contract. However, the measurement of revenue from the contract is may be impacted by a number of uncertainties of future events due to the increase in total contract revenue by contract modifications, claims and incentive payments or the decrease in total contract revenue by penalties arising from delays caused by the Group.
Variations are included in the contract revenue when it is probable that the customer will approve the variation or the Group expects to meet the specified performance standards and the amount of revenue could be reliably measured. We have identified the accounting for variations as a key audit matter considering the variations occurred for the year ended December 31, 2018.
We have performed the following audit procedures regarding the accounting and disclosure requirements for variations.
① Inquired of the Group's accounting policy related to the recognition of variations and penalties for delays. ② Examined whether the proper authorized person reviewed and approved the contract modifications for selected samples.
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③ Inspected supporting documents for construction projects with significant changes in the contract amounts. ④ Inquired of any projects probable to be delayed and subject to penalties and inspected supporting documents, if necessary. ⑤ Examined whether the variations were reflected in the estimated total contract costs and calculation of the percentage of completion.
Other Matter The consolidated financial statements of the Group for the year ended December 31, 2017 were audited by another auditor who expressed an unmodified opinion on those statements on March 22, 2018.
The accompanying consolidated financial statements as of and for the years ended December 31, 2018 and 2017 have been translated into United States dollars solely for the convenience of the reader. We have audited the translation and, in our opinion, the consolidated financial statements expressed in Korean won have been translated into dollars on the basis set forth in note 30 to the consolidated financial statements.
The procedures and practices utilized in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with K-IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’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 Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated 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 consolidated 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 consolidated 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, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
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• Evaluate the appropriateness of accounting policies used in the preparation of the consolidated financial statements 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 Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated 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 Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities for business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
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.
KPMG Samjong Accounting Corp. Seoul, Korea March 4, 2019
This report is effective as of March 4, 2019, 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 consolidated 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.
5 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Financial Position As of December 31, 2018 and 2017
(In thousands of won) Note 2018 2017
Assets
Current assets Cash and cash equivalents 4,5,29 W 523,992,067 745,387,135 Short-term financial instruments 4,9,26,29 1,730,472,170 1,200,513,618 Trade receivables 4,6,21,27,29 878,698,322 1,039,348,277 Due from customers for contract work 6,21,27 543,040,504 379,467,833 Other receivables 4,6,27,29 233,981,096 183,534,834 Inventories 7 352,265,930 395,084,913 Other current assets 8 510,486,097 419,278,495 4,772,936,186 4,362,615,105 Non-current assets Long-term financial instruments 4,9,26,29 1,351,405 585,098,000 Available-for-sale financial assets 4,10,26,29 - 45,225,856 Financial assets at FVPL 4,10,26,29 30,903,442 - Financial assets at FVOCI 4,10,26,29 34,740,852 - Investments in subsidiaries and associates 11,26 18,345,601 17,579,808 Long-term other receivables 4,6,21,27,29 551,626,591 465,589,290 Property, plant and equipment 12,20 46,147,463 53,836,009 Investment properties 13 34,575,496 24,124,013 Intangible assets 14 637,622,098 674,912,715 Deferred tax assets 25 118,643,968 96,971,840 1,473,956,916 1,963,337,531
Total assets W 6,246,893,102 6,325,952,636
6 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Financial Position, Continued As of December 31, 2018 and 2017
(In thousands of won) Note 2018 2017
Liabilities
Current liabilities Trade payables 4,27,29 W 933,122,780 931,245,258 Other payables 4,15,27,29 152,644,698 131,124,114 Advances received 21 431,839,649 507,694,224 Due to customers for contract work 21,27 655,125,930 798,018,866 Short-term borrowings 4,16,29 5,798,663 - Current portion of long-term liabilities 4,16,26,29 99,934,016 - Current income tax liabilities 31,834,869 74,065,363 Other current liabilities 15 9,746,889 14,841,422 Current portion of provision 21 48,157,980 - Current portion of financial guarantee liabilities 4,29 719,875 771,802 2,368,925,349 2,457,761,049 Non-current liabilities Debentures 4,16,26,29 199,708,384 299,419,420 Long-term other payables 4,15,29 102,266,100 82,144,884 Net defined benefit liabilities 1 7, 2 7 11,496,915 731,440 Provision for long-term employee benefits 17 8,995,536 7,737,044 Deferred tax liabilities 25 2,693,319 2,681,429 Provision for other liabilities and charges 21 141,067,653 115,102,108 Financial guarantee liabilities 4,29 28,457,552 25,951,673 494,685,459 533,767,998
Total liabilities 2,863,610,808 2,991,529,047
Equity
Equity attributable to owners of the Group Share capital 18 37,976,705 37,976,705 Other paid-in capital 18 1,259,364,849 1,259,364,849 Other components of equity 18 60,580,612 132,840,717 Retained earnings 19 2,031,162,647 1,902,631,701 3,389,084,813 3,332,813,972
Non-controlling interests (5,802,519) 1,609,617
Total equity 3,383,282,294 3,334,423,589 To t a l liabilities and equity W 6,246,893,102 6,325,952,636
See accompanying notes to the consolidated financial statements.
7 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Financial Position, Continued As of December 31, 2018 and 2017
(In thousands of US dollar (Note 30)) Note 2018 2017
Assets
Current assets Cash and cash equivalents 4,5,29 $ 468,645 666,655 Short-term financial instruments 4,9,26,29 1,547,690 1,073,709 Trade receivables 4,6,21,27,29 785,885 929,566 Due from customers for contract work 6,21,27 485,682 339,386 Other receivables 4,6,27,29 209,267 164,149 Inventories 7 315,058 353,354 Other current assets 8 456,566 374,992 4,268,793 3,901,811 Non-current assets Long-term financial instruments 4,9,26,29 1,209 523,297 Available-for-sale financial assets 4,10,26,29 - 40,449 Financial assets at FVPL 4,10,26,29 27,639 - Financial assets at FVOCI 4,10,26,29 31,071 - Investments in associates 11,26 16,408 15,723 Long-term other receivables 4,6,21,27,29 493,361 416,411 Property, plant and equipment 12,20 41,271 48,149 Investment properties 13 30,923 21,576 Intangible assets 14 570,273 603,625 Deferred tax assets 25 106,112 86,729 1,318,267 1,755,959
Total assets $ 5,587,060 5,657,770
8 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Financial Position, Continued As of December 31, 2018 and 2017
(In thousands of US dollar (Note 30)) Note 2018 2017 Liabilities
Current liabilities Trade payables 4,27,29 $ 834,561 832,882 Other payables 4,15,27,29 136,522 117,274 Advances received 21 386,226 454,069 Due to customers for contract work 21,27 585,928 713,728 Short-term borrowings 4,16,29 5,186 - Current portion of long-term liabilities 4,16,26,29 89,378 - Current income tax liabilities 28,472 66,242 Other current liabilities 15 8,717 13,274 Current portion of provision 21 43,071 - Current portion of financial guarantee liabilities 4,29 644 690 2,118,705 2,198,159 Non-current liabilities Debentures 4,16,26,29 178,614 267,793 Long-term other payables 4,15,29 91,464 73,468 Net defined benefit liabilities 1 7, 2 7 10,283 654 Provision for long-term employee benefits 17 8,045 6,920 Deferred tax liabilities 25 2,409 2,398 Provision for other liabilities and charges 21 126,167 102,944 Financial guarantee liabilities 4,29 25,452 23,211 442,434 477,388
Total liabilities 2,561,139 2,675,547
Equity
Equity attributable to owners of the Group Share capital 18 33,965 33,965 Other paid-in capital 18 1,126,344 1,126,344 Other components of equity 18 54,182 118,809 Retained earnings 19 1,816,620 1,701,665 3,031,111 2,980,783
Non-controlling interests (5,190) 1,440
Total equity 3,025,921 2,982,223 To t a l liabilities and equity $ 5,587,060 5,657,770
See accompanying notes to the consolidated financial statements.
The U.S. dollars figures are provided for the convenience of the readers and do not form part of the consolidated financial statements. Refer to Note 30.
9 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income For the years ended December 31, 2018 and 2017
(In thousands of won) Note 2018 2017
Sales 20,21,27 W 6,286,223,749 6,268,216,396 Cost of Sales 22,27 (5,499,662,535) (5,408,776,244) Gross profit 20 786,561,214 859,440,152 Selling and administrative expenses 22 (332,869,580) (345,018,337) Operation profit 453,691,634 514,421,815 Other income 23 89,536,330 107,782,824 Other expenses 23,27 (106,598,141) (202,265,117) Financial income 24 74,298,130 74,318,698 Financial costs 24 (14,996,517) (58,825,540) Share of profit (loss) of associates 11 (2,184,153) (841,159) Profit before income tax 493,747,283 434,591,521 Income tax expense 25 (214,655,275) (115,251,737) Profit for the period W 279,092,008 319,339,784
Profit for the period is attributable to: Owners of the Parent Company 286,003,343 319,261,382 Non-controlling interest (6,911,335) 78,402 W 279,092,008 319,339,784
Other comprehensive income (loss) Items not to be reclassified to profit or loss Remeasurements of net defined benefit liabilities (15,117,787) 14,686,922 Change in the fair value of financial assets at FVOCI 2,916,407 - Items that may be subsequently reclassified to profit or loss Change in the fair value of available-for-sale financial assets - 246,871 Currency translation differences (74,004,223) 109,848,632 Other comprehensive income (loss) for the period, net of tax (86,205,603) 124,782,425
Total comprehensive income for the period Owners of the Parent Company 199,997,549 443,844,986 Non-controlling interest (7,111,144) 277,223 W 192,886,405 444,122,209
See accompanying notes to the consolidated financial statements.
10 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income, Continued For the years ended December 31, 2018 and 2017
(In thousands of US dollar (Note 30)) Note 2018 2017
Sales 20,21,27 $ 5,713,762 5,697,394 Cost of Sales 22,27 (4,998,830) (4,916,220) Gross profit 20 714,932 781,174 Selling and administrative expenses 22 (302,556) (313,599) Operation profit 412,376 467,575 Other income 23 81,383 97,967 Other expenses 23,27 (96,891) (183,846) Financial income 24 67,532 67,551 Financial costs 24 (13,631) (53,469) Share of profit (loss) of associates 11 (1,985) (765) Profit before income tax 448,784 395,013 Income tax expense 25 (195,107) (104,756) Profit for the period $ 253,677 290,257
Profit for the period is attributable to: Owners of the Parent Company 259,959 290,186 Non-controlling interest (6,282) 71 $ 253,677 290,257
Other comprehensive income (loss) Items not to be reclassified to profit or loss Remeasurements of net defined benefit liabilities (13,741) 13,349 Change in the fair value of financial
assets at FVOCI 2,651 - Items that may be subsequently reclassified to profit or loss Change in the fair value of available-for-sale financial assets - 224 Currency translation differences (67,265) 99,845 Other comprehensive income (loss) for the period, net of tax (78,355) 113,418
Total comprehensive income for the period Owners of the Parent Company 181,786 403,423 Non-controlling interest (6,464) 252 $ 175,322 403,675
See accompanying notes to the consolidated financial statements.
The U.S. dollars figures are provided for the convenience of the readers and do not form part of the consolidated financial statements. Refer to Note 30.
11 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Changes in Equity For the years ended December 31, 2018 and 2017
(In thousands of won) Attributable to owners of the Parent company Other Non- Share Other paid components Retained controlling capital In capital of equity earnings interests To t a l
Balance at January 1, 2017 W 37,976,705 1,287,494,146 22,944,035 1,655,647,469 (15,537,127) 2,988,525,228 To t a l comprehensive income (loss)
Profit for the period - - - 319,261,382 78,402 319,339,784 Change in fair value of available-for-sale financial assets - - 246,871 - - 246,871 Remeasurements of net defined benefit liabilities - - - 14,686,922 - 14,686,922 Currency translation differences - - 109,649,811 - 198,821 109,848,632
Transactions with owners Dividends to equity holders of the Group - - - (86,964,072) (969,937) (87,934,009) Acquisition of treasury shares - (10,083,490) - - - (10,083,490) Acquisition of non- controlling interest - (18,045,807) - - 17,839,458 (206,349) Balance at December 31, 2017 W 37,976,705 1,259,364,849 132,840,717 1,902,631,701 1,609,617 3,334,423,589
Adjustment on initial application of new accounting standards (No. 1109, No.1115) - - (1,372,097) (55,390,538) - (56,762,635)
Balance at January 1, 2018 W 37,976,705 1,259,364,849 131,468,620 1,847,241,163 1,609,617 3,277,660,954 Total comprehensive income (loss)
Profit for the period - - - 286,003,343 (6,911,335) 279,092,008 Change in the fair value of financial assets at FVOCI - - 2,916,407 - - 2,916,407 Remeasurements of net defined benefit liabilities - - - (15,117,787) - (15,117,787) Currency translation differences - - (73,804,415) - (199,808) (74,004,223)
Transactions with owners Dividends to equity holders of the Group - - - (86,964,072) (300,993) (87,265,065) Balance at December 31, 2018 W 37,976,705 1,259,364,849 60,580,612 2,031,162,647 (5,802,519) 3,383,282,294
See accompanying notes to the consolidated financial statements.
12 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Changes in Equity, Continued For the years ended December 31, 2018 and 2017
(In thousands of US dollar (Note 30)) Attributable to owners of the Parent company Other Non- Share Other paid components Retained controlling capital In capital of equity earnings interests To t a l
Balance at January 1, 2017 $ 33,965 1,151,502 20,521 1,480,769 (13,896) 2,672,861 Total comprehensive income (loss)
Profit for the period - - - 285,539 70 285,609 Change in fair value of available-for-sale financial assets - - 221 - - 221 Remeasurements of net defined benefit liabilities - - - 13,135 - 13,135 Currency translation differences - - 98,067 - 178 98,245
Transactions with owners Dividends to equity holders of the Group - - - (77,778) (867) (78,645) Acquisition of treasury shares - (9,019) - - - (9,019) Acquisition of non- controlling interest - (16,139) - - 15,955 (184) Balance at December 31, 2017 $ 33,965 1,126,344 118,809 1,701,665 1,440 2,982,223
Adjustment on initial application of new accounting standards (No. 1109, No.1115) - - (1,227) (49,540) - (50,767) Balance at January 1,
2018 $ 33,965 1,126,344 117,582 1,652,125 1,440 2,931,456 Total comprehensive income (loss)
Profit for the period - - - 255,794 (6,181) 249,613 Change in the fair value of financial assets at FVOCI - - 2,608 - - 2,608 Remeasurements of net defined benefit liabilities - - - (13,521) - (13,521) Currency translation differences - - (66,008) - (179) (66,187)
Transactions with owners Dividends to equity holders
of the Group - - - (77,778) (270) (78,048) Balance at December 31,
2018 $ 33,965 1,126,344 54,182 1,816,620 (5,190) 3,025,921
See accompanying notes to the consolidated financial statements.
The U.S. dollars figures are provided for the convenience of the readers and do not form part of the consolidated financial statements. Refer to Note 30.
13 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended December 31, 2018 and 2017
(In thousands of won) Note 2018 2017
Cash flows from operation activities
Profit for the period W 279,092,008 319,339,784 Expenses not involving cash outflows 29 438,712,012 466,359,541 Income not involving cash inflows 29 (128,046,483) (142,745,677) Changes in operation assets and liabilities (516,894,871) (209,789,289) Decrease in trade receivables 154,450,906 271,815,279 Decrease (increase) in due from customers for contract work (312,717,768) 528,108,820 Decrease in other receivables 24,667,935 56,188,604 Decrease in inventories 42,269,753 46,058,789 Increase in other current assets (149,022,374) (146,673,573) Increase in long-term other receivables (85,991,145) (85,491,887) Increase(decrease) in trade payables 3,002,014 (278,813,557) Increase (decrease) in other payables 14,048,877 (35,800,157) Decrease in advance received (54,244,560) (249,032,729) Increase (decrease) in due to customers for contract work (106,941,643) 213,173,841 Decrease in other current liabilities (6,593,715) (26,035,451) Increase(decrease) in long-term other payables 18,574,585 (30,828,675) Decrease in defined benefit obligations (19,436,298) (24,492,701) Increase in plan assets (19,594,098) (7,570,173) Decrease in provisions for long-term employee benefits (710,465) (683,280) Decrease in provisions (18,656,875) (20,133,861) Cash generated from operations 72,862,666 852,742,937 Interest received 51,474,496 33,766,008 Dividends received 172,358 386,563 Interest paid (8,052,866) (10,441,266) Income tax paid (253,663,860) (168,748,156) Net cash provided by (used in) operating activities W (137,207,206) 707,706,086
14 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued For the years ended December 31, 2018 and 2017
(In thousands of won) Note 2018 2017
Cash flows from investing activities Decrease in short-term financial instruments W 1,266,245,000 1,679,100,000 Decrease in long-term financial instruments 195,000,000 105,000,000 Proceeds from disposal of available-for-sale financial assets - 129,177 Decrease in other receivables 107,888,297 4,000,000 Decrease in long-term other receivables 2,497,477 4,000,000 Proceeds from disposal of investments in subsidiaries and associates 88,502 47,067,195 Proceeds from disposal of property and equipment 935,857 1,698,218 Proceeds from disposal of intangible assets 3,888,751 - Proceeds from disposal of investment properties 2,395,000 6,999,000 Increase in short-term financial instruments (666,567,837) (1,385,845,000)
Increase in long-term financial instruments (741,339,405) (795,078,626) Purchases of available-for-sale financial assets - (9,926,370) Purchases of investments in subsidiaries and associates (3,104,712) (27,378) Increase in other receivables (135,868,081) (4,742,301)
Increase in long-term other receivables (3,517,809) (3,129,895) Purchases of financial assets at FVOCI (5,962,269) - Purchases of financial assets at FVPL (4,697,836) - Purchases of property and equipment (11,356,419) (13,907,645) Purchases of intangible assets (2,338,337) (2,131,185) Purchases of investment properties (10,495,000) (3,426) Net cash used in investing activities (6,308,821) (366,798,236)
Cash flow from financing activities Increase in short-term borrowings 5,798,663 - Payment of dividends (87,264,659) (87,933,602) Repayments of debentures - (100,000,000) Repayments of current portion of long-term liabilities - (46,684,800) Decrease of non-controlling interest - (40,073) Net cash used in financing activities (81,465,996) (234,658,475)
Net increase(decrease) in cash and cash equivalents (224,982,023) 106,249,375 Cash and cash equivalents at the beginning of the period 745,387,135 677,989,957 Effects of exchange rate changes on cash and cash equivalents 3,586,955 (38,852,197) Cash and cash equivalents at the end of the period W 523,992,067 745,387,135
See accompanying notes to the consolidated financial statements. 15
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued For the years ended December 31, 2018 and 2017
(In thousands of US dollar (Note 30)) Note 2018 2017
Cash flows from operation activities
Profit for the period $ 249,613 285,609 Expenses not involving cash outflows 28 392,373 417,100 Income not involving cash inflows 28 (114,521) (127,668) Changes in operation assets and liabilities (462,296) 187,631 Decrease in trade receivables 138,137 243,105 Decrease (increase) in due from customers for contract work (279,687) 472,327 Decrease in other receivables 22,062 50,254 Decrease in inventories 37,805 41,194 Increase in other current assets (133,282) (131,181) Increase in long-term other receivables (76,908) (76,462) Increase(decrease) in trade payables 2,685 (249,364) Increase (decrease) in other payables 12,565 (32,019) Decrease in advance received (48,515) (222,728) Increase (decrease) in due to customers for contract work (95,646) 190,657 Decrease in other current liabilities (5,897) (23,285) Increase(decrease) in long-term other payables 16,613 (27,572) Decrease in defined benefit obligations (17,383) (21,906) Increase in plan assets (17,524) (6,771) Decrease in provisions for long-term employee benefits (635) (611) Decrease in provisions (16,686) (18,007) Cash generated from operations 65,169 762,672 Interest received 46,037 30,199 Dividends received 154 346 Interest paid (7,202) (9,338) Income tax paid (226,870) (150,924) Net cash provided by (used in) operating activities $ (122,712) 632,955
16
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued For the years ended December 31, 2018 and 2017
(In thousands of US dollar (Note 30)) Note 2018 2017
Cash flows from investing activities Decrease in short-term financial instruments $ 1,132,497 1,501,744 Decrease in long-term financial instruments 174,403 93,909 Proceeds from disposal of available-for-sale financial assets - 116 Proceeds from disposal of investments in subsidiaries and associates 79 42,096 Decrease in other receivables 96,493 3,577 Decrease in long-term other receivables 2,234 3,577 Proceeds from disposal of property and equipment 837 1,519 Proceeds from disposal of intangible assets 3,478 - Proceeds from disposal of investment properties 2,142 6,260 Increase in short-term financial instruments (596,161) (1,239,464) Increase in long-term financial instruments (663,035) (711,098) Purchases of available-for-sale financial assets - (8,878) Purchases of financial assets at FVOCI (5,333) - Purchases of financial assets at FVPL (4,202) - Purchases of investments in associates (2,777) (24) Increase in other receivables (121,517) (4,241) Increase in long-term other receivables (3,149) (2,799) Purchases of property and equipment (10,157) (12,440) Purchases of intangible assets (2,091) (1,907) Purchases of investment properties (9,386) (3) Net cash used in investing activities (5,645) (328,056)
Cash flow from financing activities Increase in short-term borrowings 5,186 - Payment of dividends (78,047) (78,646) Repayments of debentures - (89,437) Repayments of current portion of long-term liabilities - (41,754) Decrease of non-controlling interest - (36) Net cash used in financing activities (72,861) (209,873)
Net increase(decrease) in cash and cash equivalents (201,218) 95,206 Cash and cash equivalents at the beginning of the period 666,655 606,377 Effects of exchange rate changes on cash and cash equivalents 3,208 (34,748) Cash and cash equivalents at the end of the period $ 468,645 666,655
See accompanying notes to the consolidated financial statements.
The U.S. dollars figures are provided for the convenience of the readers and do not form part of the consolidated financial statements. Refer to Note 30. 17
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
1. General Information
General information about HYUNDAI ENGINEERING CO., LTD. (the “Parent Company”) and its subsidiaries (collectively referred to as “the Group”) in accordance with Korean International Financial Reporting Standards (“K-IFRS”) No.1110 Consolidated Financial Statements is as follows:
The Parent Company was spun off from HYUNDAI ENGINEERING & CONSTRUCTION CO.,LTD. on January 17, 2001. The Parent Company’s headquarter is located at 75, Yulgok-ro, Jongno-gu, Seoul, Korea.
The Parent Company acquired the assets and liabilities of the engineering and construction business division, including the supervisory functions, on February 28, 2001. As a result of the merger with HYUNDAI AMCO CO., LTD. on April 1, 2014, architecture, civil, housing construction and asset management businesses have been added to the Group’s business segment.
The Parent Company‘s major shareholders and their respective percentage of ownership as of December 31, 2018 and December 31, 2017, are as follows:
December 31, 2018 December 31, 2017 Number Percentage Number Percentage Shareholder of shares of ownership(%) of shares of ownership(%) HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD. 2,933,000 38.6 2,933,000 38.6 Chung Eui-Son 890,327 11. 7 890,327 11. 7 HYUNDAI GLOVIS CO., LTD. 886,740 11. 7 886,740 11. 7 KIA MOTORS CORPORATION 710,020 9.3 710,020 9.3 HYUNDAI MOBIS CO., LTD. 710,020 9.3 710,020 9.3 Chung Mong-Ku 355,234 4.7 355,234 4.7 Treasury shares 348,335 4.6 348,335 4.6 Others 761,665 10.1 761,665 10.1
7,595,341 100.0 7,595,341 100.0
18 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements, For the years ended December 31, 2018 and 2017
1. General Information, Continued
1.1 Status of subsidiaries
The subsidiaries as of December 31, 2018, are as follows:
Subsidiaries Country Ownership(%) Year-end Main business
HYUNDAI ENGINEERING PAKISTAN Pakistan 100.0 December Construction (PRIVATE) LIMITED GALING POWER & ENERGY Philippines 100.0 December Construction CONSTRUCTION CO. INC. HYUNDAI ENGINEERING MEXICO, S. DE Mexico 100.0 December Construction R.L, DE C.V. HYUNDAI ENG AMERICA INC. USA 100.0 December Construction HYUNDAI AMCO MEXICO S. DE R.L1 Mexico 100.0 December Construction HYUNDAI ENGINEERING INDIA PRIVATE India 100.0 March Construction LIMITED HYUNDAI ENGINEERING (BEIJING) CO., LTD. (formerly, AMCO CHINA (BEIJING) China 90.0 December Construction CO., LTD.)
2 Facilities AMCO CHINA(RIZHAO) CO.,LTD. China 100.0 December maintenance HYUNDAI ENGINEERING RUS. LLC. Russia 100.0 December Construction HYUNDAI ENGINEERING DEUTSCHLAND Germany 100.0 December Construction GMBH HYUNDAI ENGINEERING BRASIL CONSTRUCTORA E GESTAO DE Brazil 100.0 December Construction PROJETOS LTDA. HYUNDAI ENGINEERING INSAAT TURIZM Turkey 100.0 December Construction SANAYI VE TICARET LIMITED SIRKETI HYUNDAI ENGINEERING CZECH S.R.O. Czech 100.0 December Construction HYUNDAI ENGINEERING SLOVAKIA S.R.O Slovakia 100.0 December Construction PT. HEIN GLOBAL UTAMA Indonesia 6 7. 0 December Construction HYUNDAI ENGINEERING MALAYSIA SDN Malaysia 100.0 December Construction BHD HEC INDIA LLP India 100.0 March Construction
1 It is a subsidiary of HYUNDAI ENG AMERICA INC. 2 It is a subsidiary of HYUNDAI ENGINEERING (BEIJING) CO., LTD. (formerly, AMCO CHINA(BEIJING) CO., LTD.)
19 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
1. General Information, Continued
1.2 Summary of financial information related to subsidiaries
Summarized financial information of consolidated subsidiaries as of and for the years ended 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 Net profit Assets Liabilities Equity Sales (loss) HYUNDAI ENGINEERING PAKISTAN(PRIVATE) LIMITED W 3,520,961 22,914,339 (19,393,378) - (802,140) GALING POWER & ENERGY CONSTRUCTION CO. INC. 13,043,505 34,705,700 (21,662,195) 731,781 (21,866,806) HYUNDAI ENGINEERING MEXICO, S. DE R.L. DE C. V. 9,966,430 8,769,085 1,197,345 38,874,890 2,706,951 HYUNDAI ENG AMERICA INC 17,542,892 15,571,585 1,971,307 68,050,528 1,623,170 HYUNDAI ENGINEERING INDIA PRIVATE LIMITED 11,167,415 8,939,979 2,227,436 46,973,448 (31,798) HYUNDAI ENGINEERING CO., LTD.(BEIJING) (formerly AMCO CHINA (BEIJING) CO., LTD.) 52,587,143 30,213,346 22,373,797 51,945,167 2,586,393 HYUNDAI ENGINEERING RUS. L.L.C. 7,402,983 3,617,352 3,785,631 38,432,853 457,499 HYUNDAI ENGINEERING DEUTSCHLAND GMBH 9,624,377 7,245,407 2,378,970 31,063,661 1,187,998 HYUNDAI ENGINEERING BRASIL CONSTRUTORA E GESTAO DE PROJETOS LTDA. 4,646,546 2,401,997 2,244,549 14,570,872 (1,256,244) HYUNDAI ENGINEERING INSAAT TURIZM SANAYI VE TICARET LIMITED SIRKETI 582,847 105,130 477,717 739,754 27,769 HYUNDAI ENGINEERING CZECH S.R.O. 5,266,546 2,245,049 3,021,497 10,983,334 826,873 HYUNDAI ENGINEERING SLOVAKIA S.R.O. 7,804,101 3,472,523 4,331,578 15,553,210 1,398,023 PT. HEIN GLOBAL UTAMA 6,183,520 30,546,850 (24,363,330) 42,135,629 (21,727,196) HYUNDAI ENGINEERING MALAYSIA SDN BHD 64,993,001 88,942,573 (23,949,572) 78,513,884 (24,119,494) HEC INDIA LLP 100,494,831 73,142,796 27,352,035 448,803,454 35,365,316
(In thousands of won) December 31, 2017 Net profit Assets Liabilities Equity Sales (loss) HYUNDAI ENGINEERING PAKISTAN(PRIVATE) LIMITED W 4,756,401 22,694,828 (17,938,427) 3,679,878 3,443,162 GALING POWER & ENERGY CONSTRUCTION CO. INC. 19,600,275 26,506,550 (6,906,275) 64,467,850 1,482,245 HYUNDAI ENGINEERING MEXICO, S. DE R.L. DE C. V. 20,052,239 15,952,423 4,099,816 80,022,944 7,643,166 HYUNDAI ENG AMERICA INC 6,460,258 4,830,523 1,629,735 41,602,573 1,479,002 HYUNDAI ENGINEERING INDIA PRIVATE LIMITED 6,103,530 3,757,266 2,346,264 14,844,128 338,269 HYUNDAI ENGINEERING CO., LTD.(BEIJING) (formerly AMCO CHINA (BEIJING) CO., LTD.) 68,607,157 45,870,774 22,736,383 88,089,230 1,895,679 HYUNDAI ENGINEERING RUS. L.L.C. 9,039,144 5,993,051 3,046,093 28,883,854 789,995 HYUNDAI ENGINEERING DEUTSCHLAND GMBH 4,914,577 2,725,917 2,188,660 15,055,839 915,211 HYUNDAI ENGINEERING BRASIL CONSTRUTORA E GESTAO DE PROJETOS LTDA. 4,159,471 1,724,176 2,435,295 5,027,908 (914,143) HYUNDAI ENGINEERING INSAAT TURIZM SANAYI VE TICARET LIMITED SIRKETI 751,422 280,840 470,582 1,166,569 63,663 HYUNDAI ENGINEERING CZECH S.R.O. 5,924,812 3,606,032 2,318,780 18,528,591 1,183,007 HYUNDAI ENGINEERING SLOVAKIA S.R.O. 7,568,942 4,580,231 2,988,711 17,177,521 1,518,474 PT. HEIN GLOBAL UTAMA 22,703,488 24,715,673 (2,012,185) 59,593,543 (3,408,761) HYUNDAI ENGINEERING MALAYSIA SDN BHD 11,594,715 11,271,007 323,708 16,120,182 193,162 HEC INDIA LLP 82,667,211 82,136,950 530,261 35,158,807 632,703
20
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of Preparation
The Group maintains its accounting records in won and prepares statutory financial statements in the Korean language in accordance with International Financial Reporting Standards as adopted by the Republic of Korea. The accompanying consolidated financial statements have been condensed, restructured and translated into English from the Korean language financial statements.
Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Group's financial position, financial performance or cash flows, is not presented in the accompanying consolidated financial statements.
The consolidated financial statements of the Group have been prepared in accordance with Korean IFRS. 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 preparation of financial statements requires the use of critical accounting estimates. Management also needs to exercise judgement in applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3.
2.2 Changes in Accounting Policies and Disclosures
(a) New and amended standards adopted by the Group
The Group has applied the following standards and amendments for the first time for their annual reporting period commencing January 1, 2018.
- Amendments to Korean IFRS 1028 Investments in Associates and Joint Ventures
It is clarified that if the investment equity in related companies and joint ventures owned by Venture Capital Investment Corporation, mutual fund, etc. is valued at fair value instead of equity method, it can be selectively applied to each equity interest. This does not apply to the above exemptions because it does not apply to Venture Capital Investment Corporation etc. and there is no significant impact of the amendment on the financial statements.
- Amendments to Korean IFRS 1040 Transfers of Investment Property
Real estate changes to investment real estate or substitution of investment real estate is only possible if there is evidence of usage change, paragraph 57 of the standard clarifies that this is an example of a situation. We also clarified that real estate under construction is also included in the account substitution rules. This amendment has no significant impact on the financial statements.
21
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.2 Changes in Accounting Policies and Disclosures, Continued
- Amendments to Korean IFRS 1102 Share-based Payment
We clarified that the accounting for changing the classification from cash-settled type to stock-settled type and the fair value measurement method for cash-settled share-based payment transactions is the same as the stock-settled share-based payment transactions. The amendments have no significant impact on financial statements.
- Enactment of Interpretation 2122 Foreign Currency Transaction and Advance Consideration
According to Interpretation enacted, the transaction date to determine the exchange rate to apply to the initial recognition of the related asset, expense, income (or part of it) is the date on which a non-monetary asset or non-monetary liability is first recognized by prepaid or received in advance. There is no significant impact of the enactment if Interpretation on financial statements.
- Korean IFRS 1109 Financial Instruments
The Group adopted Korean IFRS 1109 Financial Instruments, on January 1, 2018 as the initial application date. Based on the transitional provisions of IFRS 1109 the comparative financial statements have not been restated, and the difference between the carrying amount of the first application date and the previous carrying amount is recognized as retained earnings (or capital) on January 1, 2018.
The correction amounts that were reflected in the balance sheet as of the date of first application of Korean IFRS 1109 are as follows.
Effect of change in Beginning balance accounting policy Beginning balance (In millions of won) (Before revision) K-IFRS 1109 (After revision) Trade receivables W 1,039,348 (9,152) 1,030,196 Other current assets 2,548,714 (2,092) 2,546,623 Due from customers for contract work 379,468 (4,326) 375,142 Inventories 395,085 - 395,085 Non-current assets 1,963,338 2,677 1,966,014 Total assets 6,325,953 (12,893) 6,313,060 Trade payables 931,245 - 931,245 Due to customers for contract work 798,019 - 798,019 Other current liabilities 728,497 - 728,497 Non-current liabilities 533,768 - 533,768 Total liabilities 2,991,529 - 2,991,529 Retained Earnings 1,902,632 (11,521) 1,890,111 Others 1,431,792 (1,372) 1,431,420 Total equity 3,334,424 (12,893) 3,321,531
22
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.2 Changes in Accounting Policies and Disclosures, Continued
Korean IFRS 1109 contains three principal classification categories for financial assets measured at amortized cost, financial assets at FVOCI and financial assets at FVPL. The classification of financial assets in accordance with Korean IFRS 1109 is generally determined based on the business model in which the financial assets are managed, and the characteristics of the contractual cash flows of the financial assets. Korean IFRS 1109 removed the categories of financial assets held-to-maturity, loan and receivables and available-for-sale financial assets. Derivatives embedded in contracts whose main contract falls under the scope of this standard are not separated, and financial assets are classified based on the entire complex financial instrument.
Korean IFRS 1109 has maintained most of the existing requirements for the classification and measurement of traditional financial liabilities in accordance with Korean IFRS 1039.
The adoption of Korean IFRS 1109 has no significant impact on the entity's accounting policy for financial liabilities and derivatives (derivatives used as a hedging instrument).
The following tables and notes describe the initial measurement categories of Korean IFRS 1039 and the new measurement categories of Korean IFRS 1109 for each category of the Group's financial assets and financial liabilities as of January 1, 2018.
The effect of the application of Korean IFRS 1109 on the carrying amount of financial assets on January 1, 2018 relates only to the new impairment requirements.
(In millions of won) Carrying amount Classification under Carrying amount Classification under under K-IFRS K-IFRS 1039 under K-IFRS 1039 K-IFRS 1109 1109 Financial assets Amortized cost w 445,387 Cash and cash equivalents Loans and receivables w 745,387 Financial assets 300,000 at FVPL Amortized cost 25,369 Short-term financial instruments Loans and receivables 1,200,514 Financial assets 1,175,145 at FVPL Amortized cost 98 Long-term financial instruments Loans and receivables 585,098 Financial assets 585,000 at FVPL Trade receivables Loans and receivables 1,039,348 Amortized cost 1,030,196 Other receivables Loans and receivables 183,535 Amortized cost 181,443 Long-term other receivables Loans and receivables 465,589 Amortized cost 460,214 Available-for-sale Available-for-sale 45,226 - - financial assets financial assets Financial assets at Financial assets at FVPL - - 21,099 FVPL Financial assets at Financial assets at FVOCI - - 26,757 FVOCI
23
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.2 Changes in Accounting Policies and Disclosures, Continued
(In millions of won) Classification Carrying Classification Carrying under K-IFRS amount under under K-IFRS amount under 1039 K-IFRS 1039 1109 K-IFRS 1109 Financial liabilities Financial liabilities Financial liabilities Amortized cost 931,245 931,245 at amortized cost w at amortized cost w Financial liabilities Financial liabilities Other payables 131,124 131,124 at amortized cost at amortized cost Other financial liabilities Financial liabilities Financial liabilities 772 772 – current at amortized cost at amortized cost Financial liabilities Financial liabilities Debentures 299,419 299,419 at amortized cost at amortized cost Financial liabilities Financial liabilities Long-term other payables 82,145 82,145 at amortized cost at amortized cost Other financial liabilities Financial liabilities Financial liabilities 25,952 25,952 - non-current at amortized cost at amortized cost
① Equity instruments are products that the group invests for the purpose of strategic long-term holding. To the extent permitted by Korean IFRS 1109, the group has designated these investment assets as financial assets at FVOCI at the initial adoption date. Unlike Korean IFRS 1039, the cumulative fair value gains and losses associated with these equity instruments are not reclassified into current profit or loss.
② Based on Korean IFRS 1039 these equity instruments were designated as financial assets as measured at fair value through profit or loss because they were managed on a fair value basis and the results were evaluated. These assets are classified as financial assets at FVPL under Korean IFRS 1109.
③ Trade receivables and other receivables classified as loans and receivables in accordance with Korean IFRS 1039 will be classified as financial assets at amortized cost. With the application of Korean IFRS 1109, an additional allowance for doubtful accounts of 16,619 million won was recognized in retained earnings on January 1, 2018.
24
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.2 Changes in Accounting Policies and Disclosures, Continued
The effect of adjusting the carrying amount of financial assets in accordance with Korean IFRS 1039 to the carrying amount in accordance with Korean IFRS 1109 on January 1, 2018 is as follows.
(In millions of won) Classification Classification Reclassification Remeasurement under K-IFRS 1039 under K-IFRS 1109 Financial assets Amortized cost w 1,039,348 (1,039,348) - - Trade receivables - 1,039,348 (9,152) 1,030,196 183,535 (183,535) - - Other receivables - 183,535 (2,092) 181,443 465,589 (465,589) - - Long-term other receivables - 465,589 (5,375) 460,214 Total financial assets measured at amortized 1,688,472 - (16,619) 1,671,853 cost Financial assets at fair
value Available-for-sale 45,226 (45,226) - - financial assets Financial assets at FVOCI - 23,577 3,180 26,757 Financial assets at FVPL - 21,649 (550) 21,099 Total financial assets 45,226 - 2,630 47,856 measured at fair value
Korean IFRS 1109 replaced Korean IFRS 1039, ‘Incurred loss’ model with ‘Expected credit loss’ model. The new damage model applies to financial assets measured at amortized cost, contract assets and debt instruments measured at FVOCI but not to equity instrument investments. Credit losses in Korean IFRS 1109 will be recognized earlier than Korean IFRS 1039.
Impairment loss on assets subject to the Korean IFRS 1109 damage model is generally expected to increase and the volatility to increase. If the group applied the damage requirement of Korean IFRS 1109 on January 1, 2018 the group determined that an additional impairment loss would occur as follows:
(In millions of won) Division Amount Allowance for doubtful accounts under K-IFRS 1039 on December 31, 2017 w (164,382) Additional impairment losses recognized on January 1, 2018 - Trade and other receivables as of December 31, 2017 (16,619) Contracted assets recognized upon application of K-I FRS 1115 (4,326) Allowance for doubtful accounts under K-IFRS 1109 on January 1, 2018 (185,327)
25
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.2 Changes in Accounting Policies and Disclosures, Continued
- Korean IFRS 1115 Revenue from Contracts with Customers
The group adopted Korean IFRS 1115 ‘Revenue from Contracts with Customers’. In accordance with the transitional provisions of K-I FRS 1115 the comparative financial statements have not been restated and the cumulative effect of the initial application is retroactively applied to recognize retained earnings on January 1, 2018.
The adjusted amounts that were first reflected in the financial statement as of the initial application date of Korean IFRS 1115 are as follows.
Effect of change in Beginning Balance Beginning Balance accounting policy (Before revision) (After revision) (In millions of won) K-IFRS 1115 Trade receivables W 1,039,348 - 1,039,348 Other current assets 2,548,714 (55,480) 2,493,235 Due from customers for contract 379,468 (76,362) 303,106 work Inventories 395,085 - 395,085 Non-current assets 1,963,338 14,142 1,977,479 Total assets 6,325,953 ( 11 7, 7 0 0 ) 6,208,253 Trade payables 931,245 - 931,245 Due to customers for contract work 798,019 (35,951) 762,068 Other current liabilities 728,497 (37,879) 690,618 Non-current liabilities 533,768 - 533,768 Total liabilities 2,991,529 (73,830) 2,917,699 Retained Earnings 1,902,632 (43,870) 1,857,762 Others 1,431,792 - 1,432,792 Total equity 3,334,424 (43,870) 3,290,554
- Incremental cost of contract
Based on Korean IFRS 1115 the group recognized the costs incurred regardless of whether or not the contract is concluded regardless of the contract as an expense at the time of occurrence unless it is clear to the customer that the cost can be claimed. We also recognized as an asset only the amount expected to be recovered as a cost that did not enter into the contract (the incremental cost of the contract) as the cost incurred to enter into a contract with the customer. Retained earnings of 55,480 million won are reflected in the basis financial statements as a result of these changes in accounting policies.
26
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.2 Changes in Accounting Policies and Disclosures, Continued
- Significant financial elements
The group adjusted the price paid to reflect the impact of the time value of money in the event that significant financial benefits are provided to the client or an entity while the goods or services are transferred to the client due to the payment timing agreed upon between the parties in determining the transaction price. As a result of these changes in accounting policies, retained earnings of 227 million won are reflected in the basis financial statements.
- Offsetting of contract assets and contract liabilities
The group accounts for the remaining rights and obligations of the contract on a net basis and represents them as contract assets and contract liabilities under Korean IFRS 1115. Reclassifications due to these changes in accounting policies are reflected in the basis financial statements.
- Indication of construction loss provisions
In accordance with Korean IFRS 1115 the construction loss provision is grossly stated in the financial statements without adjusting to contract assets and contract liabilities. Reclassifications due to these changes in accounting policies are reflected in the basis financial statements.
The group newly adopted the following revised standard Korean IFRS 1109 and 1115 from the accounting period beginning on January 1, 2018. And the effect on financial statements is as follows.
- Balance sheet
(In millions of won) Adjustment If the change Reported standard does not amounts (*) Effect of Effect of apply K-IFRS 1109 K-IFRS 1115 Trade receivables w 878,698 (6,731) - 885,429 Other current assets 2,998,931 (2,700) (70,554) 3,072,185 Due from customers for contract 543,041 (6,559) (140,351) 689,951 work Inventories 352,266 - - 352,266 Non-current assets 1,473,957 8,755 - 1,465,202 Total assets 6,246,893 ( 7, 2 3 5 ) (210,905) 6,465,033 Trade payables 933,123 - - 933,123 Due to customers for contract 655,126 - (42,754) 697,880 work Other current liabilities 780,677 - (114,571) 895,248 Non-current liabilities 494,685 - - 494,685 Total liabilities 2,863,611 - (157,325) 3,020,936 Retained Earnings 2,031,162 (8,807) (53,580) 2,093,549 Others 1,352,120 1,572 - 1,350,548 Total equity 3,383,282 ( 7, 2 3 5 ) (53,580) 3,444,097 (*) It is the amount after the adjustment by application of Korean IFRS 1109, 1115 is reflected.
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.2 Changes in Accounting Policies and Disclosures, Continued
- Income statement and total comprehensive income
(In millions of won) Adjustment If the change Reported Effect of Effect of Total standard does amount (*) K-IFRS 1109 K-IFRS 1115 adjustment not apply Revenue w 6,286,224 - (5,230) (5,230) 6,291,454 Cost of sales 5,499,663 - (24,742) (24,742) 5,524,405 Selling and administrative 332,870 (188) 29,191 29,003 303,867 expenses Other profit (17,062) (1,771) - (1,771) (15,291) Finance profit 59,302 5,134 (234) 4,900 54,402 Equity method profit (2,184) - - - (2,184) Income tax expense 214,655 (310) (2,818) (3,128) 217,783 Profit for the year 279,092 3,861 (7,095) (3,234) 282,326 Total comprehensive 192,886 8,012 (7,095) 917 191,969 income for the year (*) It is the amount after the adjustment by application of Korean IFRS 1109, 1115 is reflected.
(b) New standards and interpretations not yet adopted by the Group
The contents of the Korean IFRS that has been enacted and published but has not yet come into effect are as follows.
- Enactment of Korean IFRS 1116 Leases
The standard introduces a comprehensive model for lease contract identification and accounting for both the lease user and the lease provider. The statement replaces Korean IFRS 1017 ‘Lease’ and the related lease- related provisions including related interpretation, and the group will apply this standard from the beginning of the period after January 1, 2019.
The standard separates leases and service contracts based on whether the identified asset is controlled by the customer. And the requirement that lease users need to distinguish between operating leases and finance leases has been deleted and instead the lease users must recognize the licensed assets and the associated liabilities for all leases except short-term leases and small-value asset leases by a model.
Licensed assets are measured initially at cost and subsequently at cost (with some exceptions) reflecting the amount of remeasurement of the lease liability minus accumulated depreciation and accumulated impairment losses. Lease liabilities are measured at the present value of lease payments not paid upon initial recognition. Subsequently the lease liability is adjusted to reflect the impact of the change in the lease as well as interest and lease payments.
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.2 Changes in Accounting Policies and Disclosures, Continued
In addition, under Korean IFRS 1017, operating lease payments have been displayed as operating cash flow, but in this standard, lease payments are divided into principal and interest parts and are shown as cash flow from operating activity and cash flow from financing activity respectively it is also affected by the classification of cash flows.
In contrast to the accounting for lease users, the standard applies the lease provider's accounting rules in Korean IFRS 1017 almost as it is and requires to classify the lease as an operating lease or a finance lease continually for the lease provider. The standard also requires expanded footnote disclosure. The group is analyzing the impact of adopting the revised standard.
2.3 Basis of consolidation
The consolidated financial statements are prepared in accordance with Korean IFRS 1110 Consolidated Financial Statements.
(1) Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred is measured at the fair values of the assets transferred, and identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. All other non-controlling interests are measured at fair values, unless otherwise required by other standards. Acquisition-related costs are expensed as incurred.
The excess of consideration transferred, amount of any non-controlling interest in the acquired entity and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recoded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognized directly in the profit or loss as a bargain purchase.
Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.3 Basis of Consolidation, Continued
(2) Associates
Associates are entities over which the Group has significant influence but not control or joint control. Investments in associates are accounted for using the equity method of accounting, after initially being recognized at cost. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. If there is an objective evidence of impairment for the investment in the associate, the Group recognizes the difference between the recoverable amount of the associate and its book amount as impairment loss.
(3) Joint ventures
A joint arrangement, wherein two or more parties have joint control, is classified as either a joint operation or a joint venture. A joint operator recognizes its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses. Interests in joint ventures are accounted for using the equity method, after initially being recognized at cost in the consolidated statement of financial position.
2.4 Foreign Currency Translation
(1) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which headquarter, overseas branches and overseas offices operate (“the functional currency”). The consolidated financial statements are presented in Korean won.
(2) Transactions 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 resulted 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.
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 equities held 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 equities classified as available-for-sale financial assets are recognized in other comprehensive income.
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.5 Financial Assets
(1) Recognition and initial measurement
Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets or liabilities are recognized in statement of financial position when, and only when, the Group becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.
(2) Classification and subsequent measurement
On initial recognition, a financial asset is classified as measured at: amortized cost; FVOCI – debt investment; FVOCI – equity investments; or FVPL. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated at FVPL:
-It is held within a business model whose objective is to hold assets to collect contractual cash flows; and -Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVPL:
-It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and -The contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
On initial recognition of an equity investments that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. However once elected, it cannot be canceled. This election is made on an investment-by-investment basis.
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVPL. This includes all derivative financial assets. At initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. However once elected, it cannot be canceled. 31
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.5 Financial Assets, Continued
(3) Subsequent measurement and gains and losses
Classification Subsequent measurement These assets are subsequently measured at fair value. Net Financial assets at FVPL gains and losses, including any interest or dividend income, are recognized in profit or loss. These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign Financial assets at amortized cost exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
Classification Subsequent measurement These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in Debt investments at FVOCI profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss. These assets are subsequently measured at fair value. Dividends are recognized in profit or loss unless they clearly Equity investments at FVOCI represent a recovery of investment costs. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
(4) Impairment
The Group recognizes impairment in accordance with expected credit loss impairment model for investments in debt as measured at amortized cost or fair value through other comprehensive income, lease receivables, contract assets, loan commitments, or financial guarantee contracts.
The Group recognizes the loss allowance for financial assets as 12 month- expected credit losses or lifetime expected losses classified by 3 stages as listed in following table depending on the degree of increase in credit risk since initial recognition.
Remarks(*1) The loss allowance 12-month expected credit losses: expected credit No significant increase in losses that result from those default events on the Stage 1 credit risk after initial financial instrument that are possible within 12 months recognition(*2) after the reporting date. Significant increase in Lifetime expected credit losses: expected credit losses Stage 2 credit risk after initial that result from all possible default events over the life recognition of the financial instrument. Stage 3 Credit-impaired
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.5 Financial Assets, Continued
(4) Impairment, Continued
(*1) The loss allowance of trade receivables or contract assets that result from transactions that are within the scope of K-IFRS 1115, Revenue from Contracts with Customers, and that do not contain a significant financing component in accordance with K-IFRS 1115 should be measured at an amount equal to lifetime expected credit losses; or that contains a significant financing component in accordance with K-I FRS 1115 can be measured at an amount equal to lifetime expected credit losses. Also, the loss allowance of lease receivables can be measured at an amount equal to lifetime expected credit losses.
(*2) The Group may assume that the credit risk on financial assets has not increased significantly if the financial assets are determined to have low credit risk at the reporting date.
Originated credit-impaired financial assets recognize a loss allowance only the cumulative changes in lifetime expected credit losses since initial recognition.
(5) Derecognition
If the Group has retained substantially all the risks and rewards of ownership of the transferred asset, the Group continue to recognize the transferred asset, simultaneously, recognizes the cash flows from the asset expire as a financial liability.
(6) Offsetting of financial instruments
Financial assets and liabilities are offset and the net amount reported in the separate statements 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 Group or the counterparty.
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.6 Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined using the specific identification method.
2.7 Non-current Assets Held-for-sale
Non-current assets are classified as held for sale when their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. The assets are measured at the lower amount between their carrying amount and the fair value less costs to sell.
2.8 Property, Plant and Equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Depreciation of all property, plant and equipment, except for land, is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives as follows:
Useful life Buildings, structures 40 years Vehicles 5 years Tools and equipment 5 years Machinery 5 years Leasehold improvements 5 years Construction equipment 5 years
The assets’ depreciation method, residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
2.9 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 Group 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.
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.10 Intangible Assets
The excess of consideration transferred, amount of any non-controlling interest in the acquired entity and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recoded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognized directly in the profit or loss as a bargain purchase and carried at cost less accumulated impairment losses.
Intangible assets, except for goodwill, are initially recognized at its historical cost, and carried at cost less accumulated amortization and accumulated impairment losses.
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 Group amortizes intangible assets with a limited useful life using the straight-line method over the following periods:
Useful life Orders on hand 4 - 5 years Patents-industrial 5 years Software 5 years Development costs 5 years
2.11 Investment Property
Investment property is property held to earn rentals or for capital appreciation or both. An investment property is measured initially at its cost. An investment property is measured after initial measurement at depreciated cost (less any accumulated impairment losses). After recognition as an asset, investment property is carried at cost less accumulated depreciation and impairment losses. The Group depreciates investment properties, except for land, using the straight-line method over their useful lives of 40 years.
2.12 Impairment of Non-financial Assets
Goodwill and intangible assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.13 Financial liabilities
(a) Classification and measurement
The Group 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.
(b) 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.
2.14 Financial Guarantee Contracts
Financial guarantee contracts are recognized as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value, subsequently at the higher of the amount determined in accordance with Korean IFRS 1037 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognized less cumulative amortization in accordance with Korean IFRS 1018 Revenue, and recognized in the statement of financial position.
2.15 Provisions
Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period, and the increase in the provision due to the passage of time is recognized as interest expense.
2.16 Current and Deferred Tax
The tax expense for the period consists of current and deferred tax. Current and deferred tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.
The tax expense is measured at the amount expected to be paid to the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.16 Current and Deferred Tax, Continued
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. The Group recognizes current income tax on the basis of amounts expected to be paid to the tax authorities. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor profit or loss.
Deferred tax assets are recognized only if it is probable that future taxable amounts will be available to utilize those temporary differences and losses.
The Group recognizes a deferred tax liability all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint arrangements, except to the extent that the Group 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. In addition, The Group recognizes a deferred tax asset for all deductible temporary differences arising from such investments to the extent that it is probable 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 and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis.
2.17 Employee Benefits
The Group operates both defined contribution and defined benefit pension plans.
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.
For defined contribution plans, the Group pays contribution to publicly or privately administered pension insurance plans on mandatory, contractual or voluntary basis. The Group has no further payment obligation once the contribution have been paid. The contribution are recognized as employee benefit expense when they are due.
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.18 Revenue Recognition
The Group has applied K-IFRS No.1115 “Revenue from Contracts with Customers” from January 1, 2018.
(1) Identifying the performance obligations
The Group recognizes separated and distinct performance obligations if both of the following criteria are met; ①The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, ②The Group’s promise to transfer the good or service to the customer is separately identifiable from other promise in the contract.
(2) Performance obligations satisfied over time
The Group recognizes revenue over time as performance of the Group creates or enhance an asset that the customer controls as the asset is created or enhanced or performance of the Group does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.
Certain construction service contracts for apartments is recognized revenue over time for contracts that meet the Korea Accounting Institute Questionnaire ‘2017-I-KQA015’, and this accounting is effective only in accordance with K-IFRS of the Clause 1, Article 5 of the External Audit Act.
(3) Progress measurement with input method
The Group recognizes revenue based on the percentage of completion with input method, after excluding the effects of any inputs that do not depict performance of the Group from an input method in case of performance obligations satisfied over time. If the output of performance obligation could not be measured reliably but be expected recovering cost, the input method to recognizes revenue only to the extent of that cost incurred.
Moreover, the Group recognizes revenue at an amount equal to the cost of a good used to satisfy a performance obligations as the Group expects the good is not distinct, the customer is expected to obtain control of the good significantly before receiving services related to the good, the cost of the transferred good is significant relative to the total expected costs to completely satisfy the performance obligation and the Group procures the good from a third party and is not significantly involved in designing and manufacturing the good.
(4) Variable Consideration
The Group estimate an amount of variable consideration using the expected value or the most likely amount and include in the transaction price some or all of an amount of variable consideration estimated 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 recognizing revenue.
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
2. Significant Accounting Policies, Continued
2.18 Revenue Recognition, Continued
(5) Incremental costs of obtaining a contract
The incremental costs of obtaining a contract are those costs that the Group incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained and recognized as an expense when incurred, unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained. The Group reviews each incurred cost and recognizes based on future percentage of completion incremental costs of obtaining a contract which is classified asset.
(6) Cost to fulfil a contract
If the costs incurred in fulfilling a contract with a customer are not within the scope of another Standard (for example, K-IFRS 1002 Inventories, K-IFRS 1016 16 Property, Plant and Equipment or K-IFRS 1038 Intangible Assets), the Group recognizes an asset from the costs incurred to fulfil a contract only if those costs meet all of the following criteria: - The costs relate directly to a contract or to an anticipated contract that the entity can specifically identify. - The costs generate or enhance resources of the entity that will be used in satisfying performance obligations in the future. The costs are expected to be recovered.
2.19 Approval of Issuance of the Financial Statements
The consolidated financial statements 2018 were approved for issue by the Board of Directors on February 20, 2019 and are subject to change with the approval of shareholders at their Annual General Meeting.
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
3 Significant Accounting Estimates and Assumptions
The preparation of financial statements requires the Group to make future estimates and assumptions. Estimates and judgments 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. The resulting accounting estimates will, by definition, seldom equal the related actual results. 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.
(1) Estimated impairment of goodwill
The Group tests whether goodwill has suffered any impairment on an annual basis. The recoverable amount of a cash generating unit (CGU) is determined based on value-in-use calculations.
(2) Uncertainty of the estimated total contract revenue
Total contract revenue is measured based on contractual amount initially agreed. The contract revenue can be increased by additional contract work, claims and incentive payments during the course of construction, or decreased by the penalty when the completion of contract is delayed due to the fault of the Group. Therefore, the 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 the customer will approve the increase in revenue due to the changes in contract work, or when it is probable the Group will be able to satisfy the performance requirements, and the amount can be reliably estimated.
(3) Uncertainty of the estimated total contract revenue due to construction delay
The measurement of contract revenue is affected by the uncertainty of the occurrence of future events. The contract revenue can be decreased by the claims of liquidated damages when the completion of contract is delayed due to the fault of Group. Therefore, the damage claims for the delay are estimated based on historical experience when the completion date is expected to be delayed. The Group 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.
(4) 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.
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
3. Significant Accounting Estimates and Assumptions, Continued
(5) Income taxes
The Group’s taxable income generated from these operations are subject to income taxes based on tax laws and interpretations of tax authorities in numerous jurisdictions. There are many transactions and calculations for which the ultimate tax determination is uncertain.
If certain portion of the taxable income is not used for investments or increase in wages in accordance with the Tax System for Recirculation of Corporate Income, the Group is liable to pay additional income tax calculated based on the tax laws. Accordingly, the measurement of current and deferred income tax is affected by the tax effects from the new tax system. As the Group’s income tax is dependent on the investments and increase in wages, there is an uncertainty measuring the final tax effects.
(6) Provisions
The Group recognizes provisions for warranty reserve as at the reporting date. The amounts are estimated based on historical data.
(7) Net defined benefit liability
The present value of net defined benefit liability depends on a number of factors that are determined on an actuarial basis using a number of assumptions including the discount rate.
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
4. Financial Instruments by Category
The book value and fair value of financial assets and liabilities including fair value hierarchy are as follows: (It does not include the fair value information about financial assets and liabilities which are not measured at fair value if the carrying amount is a reasonable approximation of fair value.)
(1) Fair values of financial assets as of December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 Financial Financial Amortized assets at assets at Fair Financial assets cost FVPL FVOCI Total value
Cash and cash equivalents W 523,992,067 - - 523,992,067 - Short-term financial instrument assets 155,471,170 1,575,001,000 - 1,730,472,170 1,575,001,000 Long-term financial instrument assets 1,351,405 - - 1,351,405 - Trade receivables 878,698,322 - - 878,698,322 - Other receivables 233,981,096 - - 233,981,096 - Long-term other receivables 551,626,591 - - 551,626,591 - Financial assets at FVPL - 30,903,442 - 30,903,442 30,903,442 Financial assets at FVOCI - - 34,740,852 34,740,852 34,740,852 W 2,345,120,651 1,605,904,442 34,740,852 3,985,765,945 1,640,645,294
(In thousands of won) December 31,2017 Available-for Loans and -sale financial Financial assets receivables assets Total Fair value
Cash and cash equivalents W 745,387,135 - 745,387,135 - Short-term financial instrument assets 1,200,513,618 - 1,200,513,618 - Long-term financial instrument assets 585,098,000 - 585,098,000 - Trade receivables 1,039,348,277 - 1,039,348,277 - Other receivables 183,534,834 - 183,534,834 - Long-term other receivables 465,589,290 - 465,589,290 - Available for sales financial assets1 - 45,225,856 45,225,856 8,666,637 W 4,219,471,154 45,225,856 4,264,697,010 8,666,637
1 Equity instruments that do not have a quoted price in an active market are measured at cost because its fair value cannot be measured reliably and excluded from the fair value disclosures.
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
4. Financial Instruments by Category, Continued
(2) Fair values of financial liabilities as of December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017 Financial liabilities Financial liabilities Financial liabilities at amortized cost Fair value at amortized cost Fair value
Traded payables W 933,122,780 - 931,245,258 - Other payables1 81,664,697 - 73,929,284 - Short-term borrowings 5,798,663 - - - Current portion of other financial guarantee liabilities 719,875 - 771,802 - Debentures2 299,642,400 - 299,419,420 - Long-term other payables 102,266,100 - 82,144,884 - Financial guarantee liabilities 28,457,552 - 25,951,673 - W 1,451,672,067 - 1,413,462,321 -
1 The difference in the amount presented on the consolidated statement of financial position and the amount presented above represents non-trade advances and accrued employee benefit expenses. 2 The amount includes the current portion of long-term liabilities in the statement of financial position.
(3) The Group analyzes financial instruments carried at fair value based on the following valuation techniques. The defined levels are as follows:
Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
(4) Fair value hierarchy classifications of the financial instruments that are measured at fair value as of December 31, 2018 and December 31, 2017, are as follows:
Financial assets at Financial assets Financial assets Available-for-sale
(In thousands of won) FVPL at FVPL at FVOCI financial assets Level 2 Level 3
December 31, 2018 W 1,575,001,000 30,903,442 34,740,852 - December 31, 2017 - - - 8,666,637
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value as observable, the instruments is included in Level 2.
If one or more significant inputs are not based on the observable market data, these instruments are included in Level 3. 43
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
4. Financial Instruments by Category, Continued
(5) Details of changes in the financial instruments that are included in level 3 for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017 Financial assets at Financial assets at Available-for-sale FVPL FVOCI financial assets
Prior year ending balance W 8,666,637 - 8,275,779 Adjustment on initial application of new accounting standards (No.1109) 12,432,862 26,757,160 - Current year beginning balance W 21,099,499 26,757,160 - Comprehensive income and others - 2,021,423 390,858 Profit for the year and others 5,133,503 - - Acquisition 4,670,440 5,962,269 - Current year ending balance W 30,903,442 34,740,852 8,666,637
(6) Valuation techniques and inputs
① Valuation techniques and inputs used in the recurring and non-recurring fair value measurements and disclosed fair value categorized in Level 3 of the fair value hierarchy as of December 31, 2018, are as follows:
(In thousands of won) December 31, 2018 Fair value Level Valuation techniques Financial assets at FVPL Construction Guarantee Cooperative equity Net asset valuation investments and others W 9,510,102 and others Cash flow discount 16,633,520 Debt securities 3 method Usage of past 676,940 Debt securities transactions Collective investment securities 4,082,880 Market approach W 30,903,442 Financial assets at FVOCI Net asset valuation 3 Non-marketable Equity securities W 4,283,475 and others Cash flow discount 3 Non-marketable Equity securities 30,457,377 method 34,740,852 W 65,644,294
44
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
4. Financial Instruments by Category, Continued
(6) Valuation techniques and inputs, continued
② Level 3 assessment techniques and significant but not observable input variables
The valuation techniques used to measure fair value at Level 3 and the inputs that are significant but not observable are as follows:
Significant but Fair value measurements and significant but not Evaluation not observable observable Interrelationship between input Division technique Input variable variables Equity Cash flow Expected revenue The estimated fair value increases (decreases) as securities discount method growth rate, risk- follows: etc etc. adjusted discount ㆍ Expected revenue growth is going to be lower rate, etc. (lower) ㆍ Risk-Adjusted Discount Rate is Increasing (Decreasing) Generally, revenue growth rates will vary similar to EBITDA.
(7) Gains and losses on each category of financial instruments for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017 Financial assets at amortized cost(formerly, loans and receivables) Interest income W 61,206,124 46,636,107 Impairment loss (4,965,037) (38,985,390) Other impairment loss (9,275,331) (20,122,841) Reversal of other impairment loss 12,592,366 661,947 Available-for-sale financial assets Dividend income - 367,247 Loss on disposal of available-for-sale financial assets - (1,068,474) Impairment loss of available-for-sale financial assets - (3,792,120) Financial assets at FVPL Dividend income 82,327 - Gain on valuation of financial assets at FVPL 5,969,088 - Loss on disposal of financial assets at FVPL (27,396) - Loss on valuation of financial assets at FVPL (835,586) - Financial assets at FVOCI Dividend income 90,031 - Financial liabilities at amortized cost Interest expense (8,120,621) (10,708,400)
Net exchanges differences that relate to loans and receivables, and financial liabilities measured at amortized cost amount to W12,903 million (2017: (-)W87,619 million).
45
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
5. Cash and Cash Equivalents
Cash and cash equivalents as of December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017
Cash on hand W 455,240 495,514 Local currency bank deposits 85,068,451 374,952,859 Foreign currency bank deposits 438,468,376 369,938,762 W 523,992,067 745,387,135
46
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
6. Trade Receivables, Due from Customers for Contract Work, Other Receivables and Long-term Other Receivables
(1) Components of trade receivables, due from customers for contract work, other receivables and long- term other receivables as of December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017 Trade receivables Trade receivables W 908,175,732 1,062,274,058 Less : provisions for impairment (29,477,410) (22,925,781) W 878,698,322 1,039,348,277
Due from customers for contract work Due from customers for contract work W 581,861,383 406,421,716 Less : provisions for impairment (38,820,879) (26,953,883) W 543,040,504 379,467,833
Other receivables Non-trade receivables W 178,149,264 172,958,408 Less : provisions for impairment (11,523,029) (20,545,684) Accrued income 38,590,328 28,858,700 Less : provisions for impairment (8,931,053) (8,008,853) Short-term loans 33,892,696 5,825,435 Less : provisions for impairment (479,719) (25,435) Current portion of long-term loans 2,697,656 2,497,477 Less : provisions for impairment (4,822) - Current portion of guarantee deposits 1,620,513 1,974,786 Less : provisions for impairment (30,738) - W 233,981,096 183,534,834
Long-term other receivables Long-term non-trade receivables W 20,018 12,846 Less : provisions for impairment (232) - Long-term loans 99,866,920 94,046,737 Less : present value discount (1,198,183) - Less : provisions for impairment (86,785,550) (81,627,171) Guarantee deposits 556,826,948 463,325,799 Less : present value discount (6,394,092) (5,873,735) Less : provisions for impairment (10,709,238) (4,295,186) W 551,626,591 465,589,290
47
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
6. Trade Receivables, Due from Customers for Contract Work, Other Receivables and Long-term Other Receivables, Continued
(2) Expected credit losses and provisions for impairment for trade receivables
The Group measures provisions for impairment at an amount equal to lifetime expected credit losses for its trade receivables. . Expected credit losses on trade receivables are determined using a provision setting table that takes into account an analysis of the current financial position of the debtor, including the debtor's past default experience and factors specific to the borrower, the general economic environment, and the assessment of the current situation at the reporting date as well as the assessment of how the situation will change in the future.
Information on expected credit losses and credit risk exposures for trade receivables as of December 31, 2018 is as follows:
(In thousands of won) Weighted average Provisions for
default rate Book value impairment Credit damage
Receivables unexpired 0.76% W 655,408,148 4,982,420 No Up to 3 months 0.76% 28,597,598 217,399 No 3 to 6 months 0.76% 48,126,267 365,856 No Over 6 months 13.58% 176,043,719 23,911,735 No 3.25% W 908,175,732 29,477,410
The Group issues trade receivables when there is information indicating that the debtor is facing serious financial difficulties, such as liquidation of the debtor or commencement of bankruptcy proceedings, and there is no reasonable expectation of recovery.
48
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
6. Trade Receivables, Due from Customers for Contract Work, Other Receivables and Long-term Other Receivables, Continued
(3) Movements on the provision for impairment of trade and other receivables for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 Beginning balance Provision for impairment Adjustment Reversal of at K-IFRS according to Impairment provision for Ending 1039 K-IFRS 1109 loss impairment Write off balance
Trade receivables W 22,925,781 9,152,445 10,612,849 (13,213,665) - 29,477,410 Dues from customer for contract work 26,953,884 4,325,933 26,907,668 (19,341,901) (24,705) 38,820,879 Other receivables 28,579,972 2,092,297 3,077,431 (12,592,366) (187,973) 20,969,361 Long-term other receivables 85,922,357 5,374,678 6,197,985 - - 97,495,020 W 164,381,994 20,945,353 46,795,933 (45,147,932) (212,678) 186,762,670
(In thousands of won) 2017 Reversal of Beginning Impairment provision for Ending balance loss impairment Write off balance
Trade receivables W 64,519,632 16,452,709 - (58,046,560) 22,925,781 Dues from customer for contract work 4,415,153 22,538,731 - - 26,953,884 Other receivables 25,424,412 14,934,332 (33,575) (11,745,197) 28,579,972 Long-term other receivables 107,911,989 5,182,459 (628,372) (26,543,719) 85,922,357 W 202,271,186 59,108,231 (661,947) (96,335,476) 164,381,994
49
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
7. Inventories
(1) Details of inventories as of December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017
Land W 333,491,220 389,052,780 Less : valuation allowance (840,369) (840,369) Raw material 14,929,529 4,227,388 Completed housing 1,766,785 4,009,161 Less : valuation allowance (549,230) (2,705,576) Incomplete housing developments 3,467,995 1,341,529 W 352,265,930 395,084,913
(2) Changes in valuation allowance for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 Beginning balance Recognition Disposal Ending balance
Land W (840,369) - - (840,369) Completed housing (2,705,576) (549,230) 2,705,576 (549,230) W (3,545,945) (549,230) 2,705,576 (1,389,599)
(In thousands of won) 2017 Beginning balance Recognition Disposal Ending balance
Land W - (840,369) - (840,369) Completed housing (1,861,849) (2,953,304) 2,109,577 (2,705,576) W (1,861,849) (3,793,673) 2,109,577 (3,545,945)
8. Other Current Assets
Details of other current assets as of December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017
Advance payments W 336,867,041 189,549,956 Less : provisions for impairment (12,471,757) (18,117) Prepaid expenses 158,399,687 208,247,998 Prepaid value added taxes 27,691,126 21,498,658 W 510,486,097 419,278,495
50
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
9. Short-term and Long-term Financial Instruments
(1) Details of financial instruments as of December 31, 2018 and 2017, are as follows:
(In thousands of won) Details December 31, 2018 December 31, 2017
Short-term financial instruments Time deposits and others W 1,730,472,170 1,200,513,618 Long-term financial instruments Time deposits 1,338,405 585,085,000 Special deposits 13,000 13,000
1,351,405 585,098,000 W 1,731,823,575 1,785,611,618
(2) Details of financial instruments as collateral
(In thousands of won) December 31, 2018 December 31, 2017 Details
Short-term financial instruments W 85,000 - License deposit guarantee Pledged for leasehold 737,000 - deposits Collateral for completion of 1,100,000 - construction Long-term financial instruments Collateral to HOUSING & URBAN GUARANTEE 1,338,000 - CORPORATION - 85,000 License deposit guarantee Pledged for leasehold - 369,000 deposits W 3,260,000 454,000
51
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
10. Financial Assets at FV (Formerly, Available-for-sale Financial Assets)
(1) Details of financial assets at FVPL as of December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017 Acquisition cost Book value Acquisition cost Book value
Investment in Union & Association W 9,806,813 13,168,082 5,806,813 8,666,637 Investment in BTO business1 17,370,330 17,735,360 16,699,890 12,981,890 Investment in BTL business1 1,062,795 - 1,062,795 - W 28,239,938 30,903,442 23,569,498 21,648,527
1 Investment in BTO business of W15,080 million and investment in BTL business of W1,062 million are pledged for guarantee (Note 26).
(2) Details of financial assets at FVOCI as at December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017 Acquisition Acquisition cost Book value cost Book value
1 Unlisted securities W 32,850,311 34,740,852 26,888,042 23,577,329
1 Unlisted securities of W207 million are pledged for guarantee (Note 26).
(3) Changes in the fair value of financial assets at FVOCI(formerly, available-for-sale financial assets) for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017 Changes in the fair value Changes in the fair value of financial assets at of available-for-sale FVOCI financial assets1
Beginning balance W - 1,851,347 Adjustment on initial application of new accounting standards (No.1109) 726,122 - Increase(decrease) 2,021,423 1,005,414 Tax effect 894,983 (758,542) Ending balance W 3,642,528 2,098,218
1 Gains and losses on available-for-sale financial assets amounting to W2,454 million were reclassified to fair value at financial assets at FVPL.
52
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
11. Investments in Associates
(1) Details of investments in associates as of December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017 Percentage Percentage of of ownership ownership Name of Company Country (%) Book value (%) Book value
Associates HYUNDAI ENGINEERING - (THAILAND) CO., LTD. Thailand 49 W 49 W - HAEVICH COUNTRY CLUB.,
LTD. Korea 40 6,501,912 40 5,417,607 DAMYANG GREEN
DEVELOPMENT CO., LTD.1 Korea 24.90 - 24.90 24,900 INCHEON GANGHWA INDUSTRIAL COMPLEX CO., LTD. Korea 20 2,400,000 20 2,400,000 KM ENERGY CO., LTD. Korea 29.90 - 29.90 - SEJONG MIRAE INDUSTRIAL
COMPLEX CO., LTD.1 Korea 20 389,280 20 400,000 THE HS-CITY EXPRESSWAY1 Korea 27.66 5,234,950 27.66 8,503,407 HYUNDAI ENGINEERING
(CAMBODIA) CO., LTD. Cambodia - - 100 20,048 LHT INTERNATIONAL ENGINEERING JOINT STOCK COMPANY Vietnam 30 478,680 30 496,468 VISION RIDE CO., LTD. Korea 32.92 - 32.92 - CHEONGJU OCHANG
TECHNOPOLIS CO., LTD. Korea 29 290,000 29 290,000 UZLITI ENGINEERING LLC2 Uzbekistan - - 25 25,378 CHEONGJU OKSAN2 INDUSTRIAL COMPLEX DEVELOPMENT CO., LTD. Korea 20 2,000 20 2,000 DONGBUK LRT CO., LTD. Korea 32 2,464,000 - - TINA HYDROPOWER LIMITED Solomon
Islands 20 384,779 - - SMART VALLEY INDUSTRIAL
COMPLEX CO., LTD.1 Korea 20 200,000 - - W 18,345,601 W 17,579,808
1 As of December 31, 2018, the above investments are pledged as collateral in relation to payment guarantee of SOC and others (Note 26). 2 The Group disposed of all investments in associates related to UZLITI ENGINEERING LLC, and recognized loss on disposal of investments in associates amount to W11 million during this year.
53
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
11. Investments in Associates, Continued
(2) Changes in investments in associates for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017
Beginning balance W 17,579,808 20,080,405 Equity method profit(loss) (2,184,152) (841,159) Acquisition 3,104,712 27,378 Disposal (81,311) (34,316) Impairment loss (55,668) (1,644,500) Others (17,788) (8,000) Ending balance W 18,345,601 17,579,808
The Group recognized Impairment losses of W56 million as a result of impairment of associates during the year, respectively.
54
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
11. Investments in Associates, Continued
(3) Financial information in investments in associates for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 Asset Liabilities Sale Profit HYUNDAI ENGINEERING(THAILAND) CO., LTD. W 1,324,670 26,503,837 - (46,376) THE HS-CITY EXPRESSWAY 178,204,442 159,276,669 9,327,501 (5,571,278) INCHEON GANGHWA INDUSTRIAL COMPLEX CO., LTD. 16,190,042 3,460,605 14,664,299 1,036,424 SEJONG MIRAE INDUSTRIAL COMPLEX CO., LTD 110,750,241 113,953,358 42,421,988 3,099,875 DAMYANG GREEN DEVELOPMENT CO., LTD. 63,997,347 65,400,446 152,418 (297,135) HAEVICH COUNTRY CLUB., LTD. 289,651,584 273,396,804 12,582,284 2,889,258 CHEONGJU OCHANG TECHNOPOLIS CO., LTD. 787,370 726,396 - (396,140) W 660,905,696 642,718,115 79,148,490 714,628
(In thousands of won) 2017 Asset Liabilities Sale Profit HYUNDAI ENGINEERING(THAILAND) CO., LTD. W 1,490,007 25,466,334 - (31,019) THE HS-CITY EXPRESSWAY 197,816,481 167,071,094 2,928,033 2,092,290 INCHEON GANGHWA INDUSTRIAL COMPLEX CO., LTD. 16,190,042 3,460,605 14,664,299 1,036,424 SEJONG MIRAE INDUSTRIAL COMPLEX CO., LTD 110,750,241 113,953,358 42,421,988 3,099,875 DAMYANG GREEN DEVELOPMENT CO., LTD. 63,997,347 65,400,446 152,418 (297,135) HAEVICH COUNTRY CLUB., LTD. 287,068,881 273,524,864 12,746,644 970,360 CHEONGJU OCHANG TECHNOPOLIS CO., LTD. 787,370 726,396 - (396,140) W 678,100,369 649,603,097 72,913,382 6,474,655
As at December 31, 2018, accumulated equity movements that have not been recognized as equity method accounting for HYUNDAI ENGINEERING (THAILAND) CO., LTD., an associate, is no longer applied, amount to W12,338 million.
55
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
12. Property, Plant and Equipment
(1) Changes in property and equipment for the years ended December 31, 2018 , are as follows:
(In thousands of won) 2018 Tools and Construction Land Building Structures Machinery Vehicles equipment in progress Others Total I. Acquisition cost Beginning balance W 26,966,964 4,193,686 425,148 11,230,160 13,035,747 32,917,043 7,409,949 24,730,506 120,909,203 Acquisition - 206,106 - 1,577,319 3,086,449 2,816,667 3,669,877 - 11,356,418 Disposal - (149,571) - (2,727,401) (1,272,817) (3,358,940) - (50,570) (7,559,299) Reclassification (427,678) (1,692,574) - - - (75,654) (10,115,414) - (12,311,320) Others - 4,288 - 509,905 373,922 306,770 1,056 473,196 1,669,136 Ending balance W 26,539,286 2,561,934 425,148 10,589,983 15,223,301 32,605,886 965,468 25,153,132 114,064,138 II. Accumulated depreciation Beginning balance W - (1,891,606) (234,287) (6,893,330) (7,176,802) (26,307,729) - (24,569,440) (67,073,194) Depreciation - (67,455) (7,202) (1,611,867) (2,415,305) (3,317,522) - (146,393) (7,565,744) Disposal - - - 2,503,145 1,072,445 3,280,532 - 50,569 6,906,691 Reclassification - 661,755 - - - 75,636 - - 737,391 Others - 5,503 - (537,821) 31,467 29,268 - (450,236) (921,819) Ending balance W - (1,291,803) (241,489) (6,539,873) (8,488,195) (26,239,815) - (25,115,500) (67,916,675) III. Book value Beginning balance W 26,966,964 2,302,080 190,861 4,336,830 5,858,945 6,609,314 7,409,948 161,066 53,836,009
Ending balance W 26,539,286 1,270,131 183,659 4,050,110 6,735,106 6,366,071 965,468 37,632 46,147,463
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
12. Property, Plant and Equipment, Continued
(2) Changes in property and equipment for the year ended December 31, 2017, are as follows:
(In thousands of won) , 2017 Tools and Construction Land Building Structures Machinery Vehicles equipment in progress Others Total I. Acquisition cost Beginning balance W 26,966,964 4,193,686 425,148 12,297,431 15,343,889 38,194,314 14,650,641 28,261,678 140,333,751 Acquisition - - - 2,411,952 1,943,620 1,877,305 7,674,768 - 13,907,645 Disposal - - - (1,955,874) (1,602,183) (3,440,967) - (1,955,042) (8,954,066) Reclassification - - - (227,325) 227,325 - (14,913,691) - (14,913,691) Change in scope of consolidation - - - - - (456,999) - (25,007) (482,006) Others - - - (1,296,024) (2,876,904) (3,256,610) (1,769) (1,551,123) (8,982,430) Ending balance W 26,966,964 4,193,686 425,148 11,230,160 13,035,747 32,917,043 7,409,949 24,730,506 120,909,203 II. Accumulated depreciation Beginning balance W - (1,804,980) (227,084) (7,818,987) (7,120,625) (27,589,651) - (27,058,131) (71,619,458) Depreciation - (96,585) (7,203) (1,771,190) (2,365,755) (4,156,734) - (489,971) (8,887,438) Disposal - - - 1,919,328 1,248,604 3,118,676 - 1,390,130 7,676,738 Reclassification - - - 83,353 (83,353) - - - - Others - - - - - 450,012 - 19,392 469,404 Change in scope of consolidation - 9,959 - 694,166 1,144,327 1,869,968 1,569,140 5,287,560 Ending balance W - (1,891,606) (234,287) (6,893,330) (7,176,802) (26,307,729) - (24,569,440) (67,073,194) III. Book value Beginning balance W 26,966,964 2,388,706 198,064 4,478,444 8,223,264 10,604,663 14,650,641 1,203,547 68,714,293
Ending balance W 26,966,964 2,302,080 190,861 4,336,830 5,858,945 6,609,314 7,409,949 161,066 53,836,009
(3) Distributions of depreciation cost for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 , 2017
Cost of sales W 6,111,269 7,273,681 Selling and administrative expenses 1,454,475 1,613,757 W 7,565,744 8,887,438
57
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
13. Investment Properties
(1) Details of investment properties as of December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017 Accumulated Accumulated Cost depreciation Impairment loss Book value Book value
Land W 36,420,105 - (9,452,577) 26,967,528 23,118,464 Buildings 8,746,098 (1,138,130) - 7,607,968 1,005,549 W 45,166,203 (1,138,130) (9,452,577) 34,575,496 24,124,013
(2) Changes in investment properties for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018
Beginning Re- Ending balance Acquisition Disposal classification1 Depreciation Impairment balance
Land W 23,118,464 4,977,243 (1,555,858) 427,679 - - 26,967,528 Buildings 1,005,549 5,517,757 - 1,180,390 (95,728) - 7,607,968 W 24,124,013 10,495,000 (1,555,858) 1,608,069 (95,728) - 34,575,496
1 Property, Plant and Equipment amounting to W1,608 million, respectively, are reclassified as investment properties.
(In thousands of won) 2017
Beginning Re- Ending balance Acquisition Disposal classification2 Depreciation Impairment balance
Land W 27,090,624 3,426 (3,094,605) 8,571,596 - (9,452,577) 23,118,464 Buildings 4,355,066 - (3,281,994) - (67,523) - 1,005,549 W 31,445,690 3,426 (6,376,599) 8,571,596 (67,523) (9,452,577) 24,124,013
2 Inventories and construction-in-progress amounting to W2,055 million and W6,516 million, respectively, are reclassified as investment properties.
58
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
13. Investment Properties, Continued
(3) Profit or loss recognized in relation to investment properties for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017
Rental revenue and others W 383,810 275,810 Direct operating costs (Related to investment properties with rental income) 295,194 286,422
(4) Distributions of depreciation cost for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017
Cost of sales W 34,378 67,523 Selling and administrative expenses 61,350 - W 95,728 67,523
(5) The fair value of investment properties as of December 31, 2018 and 2017 is not significantly different from the carrying amount in the statement of financial position.
59
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
14. Intangible Assets
(1) Changes in the intangible assets for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 Contract Membership backlog rights Goodwill Others Total I. Acquisition cost Beginning balance W 213,330,000 24,432,871 588,657,920 61,194,828 887,615,619 Acquisition - - - 2,338,336 2,338,336 Disposal - (123,765) - (9,630,575) (9,754,340) Reclassification - - - 10,041,497 10,041,497 Others - (2,010,167) - 43,721 (1,966,446) Ending balance 213,330,000 22,298,939 588,657,920 63,987,807 888,274,666 II. Accumulated depreciation Beginning balance (170,896,250) - - (41,806,654) (212,702,904) Amortization (34,553,150) - - (9,027,462) (43,580,612) Disposal - - - 5,806,357 5,806,357 Reclassification - - - (75,636) (75,636) Others - - - (99,773) (99,773) Ending balance (205,449,400) - - (45,203,168) (250,652,568) III. Book value Beginning balance 42,433,750 24,432,871 588,657,920 19,388,174 674,912,715 Ending balance W 7,880,600 22,298,939 588,657,920 18,784,639 637,622,098
(In thousands of won) 2017 Contract Membership backlog rights Goodwill Others Total I. Acquisition cost Beginning balance W 213,330,000 25,393,612 588,657,920 50,795,101 878,176,633 Acquisition - 1,231 - 2,129,954 2,131,185 Disposal - - - (29,093) (29,093) Reclassification - (961,972) - 8,374,171 7,412,199 Others - - - (75,305) (75,305) Ending balance 213,330,000 24,432,871 588,657,920 61,194,828 887,615,619 II. Accumulated depreciation Beginning balance (127,250,850) - - (33,856,741) (161,107,591) Amortization (43,645,400) - - (7,994,172) (51,639,572) Disposal - - - 29,093 29,093 Reclassification - - - - - Others - - - 15,166 15,166 Ending balance (170,896,250) - - (41,806,654) (212,702,904) III. Book value Beginning balance 86,079,150 25,393,612 588,657,920 16,938,360 717,069,042 Ending balance W 42,433,750 24,432,871 588,657,920 19,388,174 674,912,715
60
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
14. Intangible Assets, Continued
(2) Distributions of amortization cost for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017
Cost of sales W 2,837,476 2,137,786 Selling and administrative expenses 40,743,136 49,501,786 W 43,580,612 51,639,572
(3) The Group’s goodwill arose from the business combination with HYUNDAI AMCO CO., LTD. The Group tests annually whether goodwill has suffered any impairment, and the recoverable amount of Cash Generating Unit is determined based on the calculated value in use.
Estimated cash flows before tax based on the five-year budget approved by management was used for calculating value in use. Sales growth rate used for the period and permanent growth rate for a period exceeding five-years are as follows
Sales growth rate (2.68)% ~ 13.88% Long-term growth rate 0% Discount rate before tax 16.30%
This growth rate does not exceed the average long-term growth rate of the industry to which the Cash Generating Unit belongs. Also, constant growth rate assumption was used in the calculation of the permanent cash flows.
As a result of the impairment test of goodwill, it is determined that the carrying amount of Cash Generating Unit will not exceed its recoverable amount.
61
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
15. Other Payables, Other Current Liabilities and Long-term Other Payables
Details of other payables, other current liabilities and long-term other payables as of December 31, 2018 and 2017, are as follows:
(In thousands of won) Details December 31, 2018 December 31, 2017
Other payables Non-trade payables W 67,779,832 57,284,088 Accrued expenses 28,201,172 30,363,312 Withholdings 56,660,697 43,474,124 Guarantee deposit 1,000 1,000 Dividend payables 1,997 1,590 W 152,644,698 131,124,114
Other current liabilities Unearned revenue W 1,060,516 986,604 Value added tax withheld 8,686,373 13,854,818 W 9,746,889 14,841,422
Long-term other payables Guarantee deposits W 103,053,645 82,918,813 Less: present value discount (787,545) (773,929) W 102,266,100 82,144,884 W 264,657,687 228,110,420
62
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
16. Short-term Borrowings and Debentures
(1) Short-term Borrowings as of December 31, 2018 and 2017 are as follows:
(In thousands of won) December 31, December 31, Types of borrowings Borrower Interest rate(%) 2018 2017 W 5,798,663 Foreign currency general loan KEB HANA BANK 3.20 (USD 5,066,000) -
(2) Debentures as of December 31, 2018 and 2017, are as follows:
(In thousands of won) Issuance Maturity Interest December December Financial institution Series date date rate(%) Payment 31, 2018 31, 2017 September September Lump sum 6-2 25, 2014 25, 2019 2.92 payment W 100,000,000 100,000,000 Public subscription April April Lump sum bond 7-1 13, 2015 13, 2020 2.12 payment 100,000,000 100,000,000 April April Lump sum 7-2 13, 2015 13, 2022 2.54 payment 100,000,000 100,000,000 Subtotal W 300,000,000 300,000,000 Less: discount on debentures payable (357,600) (580,580) Less: current portion of long-term liabilities (99,934,016) - W 199,708,384 299,419,420
63
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
17. Net Defined Benefit Liabilities
(1) Details of net defined benefit liabilities recognized in the consolidated statements of financial position as of December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017
Present value of defined benefit obligation W 236,918,248 203,244,731 Fair value of plan assets (225,421,333) (202,513,291) Net defined benefit liabilities W 11,496,915 731,440
(2) Movements in the defined benefit obligations for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017
Beginning balance W 203,244,731 208,256,973 Current service cost 30,275,102 33,642,850 Interest expense 8,023,015 6,819,407 Remeasurements 14,811,773 (20,980,510) Benefit payments (21,280,718) (26,684,974) Transfer from related companies 1,844,421 2,192,273 Others (76) (1,288) Ending balance W 236,918,248 203,244,731
(3) Movements in the fair value of plan assets for the years ended December 31, 2018 and 2017, are as follows
(In thousands of won) 2018 2017
Beginning balance W 202,513,291 190,797,136 Interest income 8,044,248 6,239,618 Remeasurements (4,730,304) (2,093,636) Employer contributions 35,000,000 30,000,000 Benefit payments (17,250,323) (24,622,100) Transfer from related companies 1,844,421 2,192,273 Ending balance W 225,421,333 202,513,291
64 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
17. Net Defined Benefit Liabilities, Continued
(4) Plan assets as at December 31, 2018 and 2017, consist of:
(In thousands of won) December 31, 2018 December 31, 2017
Cash and cash equivalents W 70,535 64,397 Short-term financial instruments - 7,483,580 Insurance and others 225,350,798 194,965,314 W 225,421,333 202,513,291
The amounts of plan assets with regards to post-employment benefits are W75,385 million (December 31, 2017: W65,565 million) to FUBON HYUNDAI LIFE INSURANCE CO., LTD. as of December 31, 2018.
(5) The significant actuarial assumptions as of December 31, 2018 and 2017, are as follows:
December 31, 2018 December 31, 2017
Discount rate 3.61% 4.17% Salary growth rate 3.19% 3.27%
(6) The sensitivity of the defined benefit obligation to changes in the principal assumptions is:
Impact on defined benefit obligation Changes in Increase in Decrease in assumption assumption assumption
Discount rate 1. 0 0 % 7.80% decrease 9.10% increase Salary growth rate 1. 0 0 % 9.20% increase 8.10% decrease
65 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
17. Net Defined Benefit Liabilities, Continued
(7) The Group reviews the funding level on an annual basis and has a policy of eliminating deficit from the fund. Expected contributions to post-employment benefit plans for the period ending December 31, 2019, are W37,903 million.
The expected maturity analysis of undiscounted pension benefits as at December 31, 2018, is as follows:
(In thousands of won) December 31, 2018 Less than 1 Between 1 Between 2 year and 2 years and 5 years Over 5 years Total
Pension benefits W 22,041,506 28,512,647 79,819,638 722,241,590 852,615,381
The weighted average duration of the defined benefit obligations is 8.70 years.
(8) Movements in provision for long-term employee benefits for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31,2017
Beginning balance W 7,737,044 7,447,153 Interest expense and others 1,234,305 1,209,848 Benefit payments (710,465) (683,280) Remeasurements 734,652 (236,677) Ending balance W 8,995,536 7,737,044
66 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
18. Share Capital, Other Paid-in-Capital and Other Component of Equity
(1) The Group’s total number of authorized shares is 20,000,000 shares and the total number of ordinary shares issued is 7,595,341 shares with a par value of W 5,000 per share
Number of Number of authorized issued Par value per Capital stock shares shares share (in thousands of (in shares) (in shares) (in won) won)
Ordinary shares 20,000,000 7,595,341 W 5,000 37,976,705
(2) There are no changes in the number of shares issued by the Group, and no subsequent changes in share capital and share premium for the years ended December 31, 2018 and 2017.
(3) Details of other paid-in capital as of December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017
Share premium W 1,417,314,062 1,417,314,062 Other reserves (17,218,881) (17,218,881) Treasury shares (140,730,333) (140,730,332) W 1,259,364,849 1,259,364,849
(4) Details of other components of equity as of December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017
Gain on valuation of available-for-sale financial assets W - 2,098,218 Gain on valuation of financial assets at FVOCI 3,642,528 - Gain on foreign currency translation 56,938,084 130,742,499 W 60,580,612 132,840,717
67 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
19. Retained Earnings
Details of retained earnings as of December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017
Legal reserve1 W 19,149,664 19,149,663 Discretionary reserve 218,510 218,510 Retained earnings before appropriation 2,011,794,473 1,883,263,528 W 2,031,162,647 1,902,631,701
1 The Commercial Code of the Republic of Korea requires the Parent 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 capital stock. The reserve is not available for cash dividends payment, but may be transferred to capital stock or used to reduce accumulated deficit. When the accumulated legal reserves (the sum of capital reserves and earned profit reserves) are greater than 1.5 times the paid-in capital amount, the excess legal reserves may be distributed (in accordance with a resolution of the shareholders’ meeting).
A dividend in respect of the period ended December 31, 2018, of W12,000 per share, amounting to a total dividend of W86,964 million, is to be proposed at the annual general meeting on March 15, 2019. The consolidated financial statements do not reflect this dividend payable.
68
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
20. Operating Segment Information
(1) Details of the Group’s reportable segments and its major customers as of December 31, 2018 are as follows:
Goods or Services Major customers
Oil refining, petro chemistry, gas restoring facility, transmission and Lukoil Uzbekistan Operating Company, transformation of electric power, SPE.SPA, JIMAH EAST POWER SND Plant & Power1 thermoelectric power plant, road, BHD, SEONGNAM Park CO.,LTD. and harbor, housing complex development, others water disposal related facility and others Factory building, general building, state- BNS, AMPLUS Asset Development Building & House of-the-art building, apartment house Inc. and others and others Others Facilities maintenance and others HYUNDAI MOTOR CO. and others
1 Infra & Environment segment was integrated into Plant & Power segment in the prior period.
(2) Profit or loss by each segment for the years ended December 31, 2018 and 2017, are as follows:
(In millions of won) 2018 Plant & Power Building & House Others Total
Revenue from external customer W 2,912,223 2,616,317 757,684 6,286,224 Total segment revenue 2,912,223 2,616,317 759,641 6,288,181 Inter-segment revenue - - 1,957 1,957 Gross profit 419,214 315,243 52,104 786,561 Property and equipment 7,247 483 38,417 46,147 Depreciation 4,246 242 3,078 7,566
(In millions of won) 2017 Plant & Power Building & House Others Total
Revenue from external customer W 2,978,360 2,657,259 632,597 6,268,216 Total segment revenue 2,978,360 2,657,259 634,597 6,270,216 Inter-segment revenue - - 2,000 2,000 Gross profit 377,081 427,596 54,763 859,440 Property and equipment 15,274 650 37,912 53,836 Depreciation 5,847 950 2,090 8,887
The accounting policy for segments is identical to that of the Group.
(3) There’s no the Group’s external customer attributing to more than 10% of sales for the years ended December 31, 2018 and 2017.
69
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
21. Construction Contracts
(1) Details of revenue from continuing operations for the years ended December 31, 2018 and 2017, are as follows:
(In millions of won) 2018 2017 Sales Construction1 W 5,260,446 5,294,355 Service1 63,416 54,774 Real estate 204,678 286,490 Asset management 757,293 632,350 Others 391 247 W 6,286,224 6,268,216
1 The Group appropriates construction sales for construction and installation of a single asset and multiple assets in cases when the design, technique, ability or final purpose are closely linked or mutually dependent. Design services that are directly related to the construction of an asset, as a result of a design service contract, are appropriated as design sales.
(2) Changes in the Group’s construction contracts for the years ended December 31, 2018 and 2017, are as follows:
Increase1 Revenue (In millions of won) January 1, 2018 (decrease) recognized December 31, 2018
Plant & Power W 7,943,752 1,574,706 (2,912,223) 6,606,235 Building & House 3,609,431 3,157,377 (2,616,317) 4,150,491 W 11,553,183 4,732,083 (5,528,540) 10,756,726
Increase1 Revenue (In millions of won) January 1, 2017 (decrease) recognized December 31, 2017
Plant & Power W 9,641,188 1,280,924 (2,978,360) 7,943,752 Building & House 3,026,655 3,240,035 (2,657,259) 3,609,431 W 12,667,843 4,520,959 (5,635,619) 11,553,183
1 New contracts and changes of contracts are included.
70
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
21. Construction Contracts, Continued
(3) Cumulative construction costs and cumulative income of the Group’s contracts on ongoing or completed projects as of December 31, 2018 and 2017, are as follows:
(In millions of won) December 31, 2018
Contract asset 1 Contract liability1 Accumulated Due from Due to Accumulated Accumulated contract Progress customers for Advance customers for contract cost profit revenue billings contract work received contract work Retentions2
Plant & Power W 15,400,227 1,775,307 17,175,534 17,202,169 389,993 283,861 572,831 433,639 Building & House 5,220,563 809,773 6,030,336 5,939,712 153,048 140,638 82,295 16,198 W 20,620,790 2,585,080 23,205,870 23,141,881 543,041 424,499 655,126 449,837
1 In addition to the above contract assets and liabilities, contract execution costs of W44,571 million are included in the prepaid expenses in the consolidated statement of financial position. 2 In the consolidated statement of financial position, the amount of retention is recorded as long-term other receivables.
(In millions of won) December 31, 2017
Contract asset Contract liability Accumulated Due from Due to Accumulated Accumulated contract Progress customers for Advance customers for contract cost profit revenue billings contract work received contract work Retentions1
Plant & Power W 15,267,357 1,591,838 16,859,195 17,295,706 185,062 402,248 701,457 362,051 Building & House 5,504,343 915,380 6,419,723 6,320,766 194,406 96,163 96,562 22,366 W 20,771,700 2,507,218 23,278,918 23,616,472 379,468 498,411 798,019 384,417
1 In the consolidated statement of financial position, the amount of retention is recorded as long-term other receivables.
71
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
21. Construction Contracts, Continued
(4) Contractual information of contract revenue which exceeds 5% of previous revenues for the years ended December 31, 2018 and 2017, is as follows:
(In millions of won) 2018 Trade receivables Due from customers for (receivables from contract work construction contracts)
Contractual Accumulated Provision Contract completion Stage of Gross impairment Gross for date date1 completion amount loss amount impairment
Uzbekistan UKAN Project 2015-02-13 2019-01-31 10 0% W 69,034 - - - Turkmenistan Ethane Cracker and PE PP Plant 2014-01-29 2018-09-30 97% - - 2,947 - Kuwait Al-Zour LNG Import Project 2016-03-30 2021-02-12 43% - - 58 - Uzbekistan GTL Project 2014-01-07 2020-04-30 45% 259,016 - - - Venezuela RPLC DEEP CONVERSION PROJECT [EPC] 2012-06-27 2020-09-30 90% - - 7, 1 3 8 - Iraq Karbala Project 2014-04-15 2022-04-02 62% - - 6,580 - LOTTE Versalis SR Project 2015-08-04 2017-07-31 10 0% - - 13,369 - Melaka Refinery Diesel Euro 5 Project 2018-02-02 2020-09-28 21% - - 36,778 - Ain Arnat 1200MW CCPP Project 2012-11-25 2019-04-20 92% - - 5,207 - Jimah East Power 2x1000MW Coal Fired Power Project 2014-08-29 2019-12-15 83% - - 2,889 - Melaka 1,800MW-2,400MW CCGT Power Plant Project 2017-05-30 2021-05-01 18% - - 4,437 - Algeria Biskra 1600MW Combined Cycle Power Plant Project 2014-02-19 2019-05-19 68% - - 7, 2 7 6 - Algeria Jijel 1600MW Combined Cycle Power Plant Project 2014-02-19 2020-12-19 70% - - 18,023 - Takhiatash Power Plant Efficiency Improvement Project 2016-12-23 2020-08-08 34% - - 23,601 - Philippine Therma Visayas 2*150MW CFB Power Plant Project 2014-05-30 2018-03-31 98% - - 29,841 - KALSEL-1 Coal Fired Power Plant 2014-12-11 2019-03-31 86% - - 103 - Colombia Termotasajero II 160MW CFPP 2012-01-18 2017-08-01 10 0% 266 - 255 - Gaepo Public official Apartment 8th complex Development Project 2018-04-09 2021-07-31 7% - - 2,165 - Jinju Chojang District 1BL Apartment house building Construction 2016-09-19 2019-04-30 85% - - 60,759 - Bucheon Jungdong Mixed Use Development 2018-05-31 2022-02-19 5% 3,565 - - - Yongin Samga 2 District New stay 2016-12-30 2021-03-05 17% - - - - Yongin Ki-heung station area Multi- purpose building construction 2014-06-17 2018-08-31 10 0% - - - - Gwang-kyo D3 Block Complex facilities 2014-03-27 2018-05-29 10 0% - - 3 7, 4 1 3 - India KIA-Motors 300 thousands cars Manufacturing Factories Construction 2017-08-01 2019-02-28 97% - - - -
1 Includes contracts substantially completed but in the process of commissioning or settlement negotiation as of December 31, 2018 are included. 72 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
21. Construction Contracts, Continued
(4) Contractual information of contract revenue which exceeds 5% of previous revenues for the years ended December 31, 2018 and 2017, is as follows: continued
(In millions of won) 2017 Trade receivables Due from customers for (receivables from contract work construction contracts)
Contractual Accumulated Provision Contract completion Stage of Gross impairment Gross for date date1 completion amount loss amount impairment
Uzbekistan UKAN Project 2015-02-13 2019-01-31 76% W - - - - Turkmenistan Ethane Cracker and PE PP Plant 2014-01-29 2018-09-30 92% 32,497 - 77,007 - Kuwait Al-Zour LNG Import Project 2016-03-30 2021-02-12 17% - - - - Uzbekistan GTL Project 2014-01-07 2020-04-30 20% - - 32,501 - RPLC DEEP CONVERSION PROJECT [EPC] 2012-06-27 2018-12-31 87% 4,032 ` 7,019 - Iraq Karbala Project 2014-04-15 2018-11-27 44% - - 59,074 - UAE Ruwais Lube Base Oil Project 2010-07-13 2016-08-15 10 0% 4,630 4,163 - LOTTE Verasalis SR Project 2015-08-04 2017-07-31 99% - - - - Ain Arnat 1200MW CCPP Project 2012-11-25 2019-04-20 83% - - - - Jimah East Power 2x1000MW Coal
Fired Power Project 2014-08-29 2019-12-15 58% - - 11,124 - Algeria Biskra 1600MW Combined
Cycle Power Plant Project 2014-02-19 2018-05-19 61% 302 - 14,692 - Algeria Jijel 1600MW Combined
Cycle Power Plant Project 2014-02-19 2018-12-19 61% 4,401 - 13,702 - Melaka 1,800MW-2,400MW CCGT
Power Plant Project 2017-05-30 2021-05-01 1% 4,227 - - - Takhiatash Power Plant Efficiency
Improvement Project 2016-12-23 2020-08-08 3% - - 14,814 - Philippines Therma Visayas
2*150MW CFB Power Plant Project 2014-05-30 2018-03-31 96% - - 15,177 - Mexico Monterey car factory Project 2014-09-20 2016-09-30 10 0% - - 5,549 -
1 Includes contracts substantially completed but in the process of commissioning or settlement negotiation as of December 31, 2017 are included.
73
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
21. Construction Contracts, Continued
(5) As of January 1, 2017 and December 31, 2017, the estimated total revenue and estimated total costs for contracts in progress have changed. Details of changes in estimated total contract costs, profits or loss for the years ended December 31, 2018 and 2017, and the succeeding year, and the impact on due from customers for contract work are as follows:
(In millions of won) 2018 Changes in Impact on assets and Changes in Changes in Impact on profit liabilities (Due estimated estimate profit or loss for from Provisions total total or loss for the customer/Due for contract contract the succeeding to customer expected revenue1 costs1 period period amount) losses
Plant & Powers W 280,708 146,979 101,750 31,978 101,750 44,217 Building & House 203,510 152,676 54,323 (3,488) 54,323 - W 484,218 299,655 156,073 28,490 156,073 44,217
(In millions of won) 2017 Changes in Impact on assets and Changes in Changes in Impact on profit liabilities (Due estimated estimate profit or loss for from Provisions total total or loss for the customer/Due for contract contract the succeeding to customer expected revenue1 costs1 period period amount) losses
Plant & Powers W (691,247) (374,795) (124,976) (191,476) (124,976) 32,486 Building & House 241,154 132,274 104,752 4,128 104,752 51 W (450,093) (242,521) (20,224) (187,348) (20,224) 32,537
1 Effect of foreign exchange rate fluctuation is included.
74
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
21. Construction Contracts, Continued
(6) The Group recognizes a provision for construction warranties and changes in the warranty reserve for the years ended December 31, 2018 and 2017, are as follows:
(In millions of won) 2018 2017 Provision for Provision for construction Provision for Provision for construction warranty construction loss others warranty
Beginning balance W 115,102 - - 98,568 Provision 30,109 16,322 15,047 37,245 Payment (18,657) - (154) (20,134) Effect of conversion - 31,836 - - Others (27) - - (577) Foreign exchange difference (352) - - - Ending balance W 126,175 48,158 14,893 115,102
(7) Details of joint construction project as of December 31, 2018, are as follows:
Share of joint construction Lead construction (In millions of won) project Ownership(%) contractor
RPLC DEEP CONVERSION PROJECT HYUNDAI ENGINEERING & [EPC] W 922,565 27.60 CONSTRUCTION CO., LTD. HYUNDAI ENGINEERING & Columbia BELLO 70,843 20.00 CONSTRUCTION CO., LTD. HYUNDAI ENGINEERING & Singapore Sembcorp ICW 57,471 30.00 CONSTRUCTION CO., LTD. HYUNDAI ENGINEERING & Iraq Karbala Project 745,376 11. 0 0 CONSTRUCTION CO., LTD. Lo Te - Rach Soi Highway KUMHO INDUSTRIAL CO., Construction Pr 23,631 30.00 LTD. Gaepo Public official Apartment 8th HYUNDAI ENGINEERING & complex Development Project 692,861 26.70 CONSTRUCTION CO., LTD W 2,512,747
75
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
21. Construction Contracts, Continued
(8) Performance obligation and Revenue recognition Policies Revenue is measured on the basis of the contracted consideration of the customer. The company recognises revenue when control of goods or services is transferred to the customer. The characteristics of the performance obligation in the contract with the customer, the timing of performance, significant payment terms and the associated revenue recognition policies are as follows:
Characteristics of goods Revenue recognition
or services, Timing of in accordance with K- Product/service Revenue recognition in accordance with K-IFRS performance obligations, IFRS 1115 (Application Classification 1018 (Application before 1 January 2018) Significant payment after
terms 1 January 2018)
If we can measure the performance of the
The scope of work for construction contract reliably, we recognized
construction services is to revenue based on progress. Progress was Construction services build plants, houses, measured by surveying the degree of completion are accounted for as general buildings, etc, The of the performance. If the performance of the progress because the Construction work is carried out after construction contract cannot be measured reliably, company transfers contract the contract and the revenue was recognized within the scope of control of goods or collection and payment contract cost that was highly recoverable. Contract services to the services are carried out costs were recognised as expenses for the period customer over time. through qualified in which they occurred. The expected loss in the
evidence. contract was immediately recognized as an
expense.
The scope of work for
asset management
service is comprehensive Asset management management of the asset, Revenue is recognized when the amount of services are recognized and the business revenue can be measured reliably, the future as revenue at that point Other Contracts performance is carried out economic benefits are likely to flow to the because they transfer after the contract and the company, and certain specific requirements of the control at a particular collection and payment company activities are met. point in time. services are conducted
through qualified
evidence.
76
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
22. Selling and Administrative Expenses and Breakdown of Expenses by Nature
(1) Selling and administrative expenses for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017
Salaries W 148,814,462 134,565,139 Retirement and severance 13,981,724 14,322,402 Employee benefits 28,286,075 27,589,518 Depreciation 1,515,826 1,613,757 Taxes and dues 4,788,535 4,597,132 Development expenses 1,055,650 564,226 Advertising expenses 2,819,489 3,001,269 Commission expenses 22,327,506 21,105,843 Electronic data processing expenses 8,779,733 5,823,159 Costs for prospective projects 32,979,280 22,677,848 Rental expenses 8,784,520 6,816,516 Amortization 40,743,136 49,501,786 Bad debts 4,965,037 38,985,390 Others 13,028,607 13,854,352 W 332,869,580 345,018,337
(2) Expenses by nature (cost of sales and selling and administrative expenses in the consolidated statement of comprehensive income) for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017
Raw material expenses W 1,628,388,255 1,795,485,273 Changes in other inventories 53,521,124 (270,553,068) Outsourcing expenses 2,850,270,516 2,981,406,090 Employee benefit expenses1 714,946,067 679,994,242 Commission expenses 156,344,975 154,185,033 Costs for prospective projects 32,979,280 22,677,848 Depreciation and amortization 51,242,084 61,277,514 Rental expenses 29,702,011 30,978,710 Taxes and dues 59,724,022 64,150,613 Insurance expenses 14,035,095 7,492,145 Others 241,378,686 226,700,181 W 5,832,532,115 5,753,794,581
1 The amounts include salaries, retirement and severance benefits and employee benefits.
77 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
23. Other Income and Expenses
Other income and expenses for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017
Other income Gain on foreign currency transaction W 46,687,217 46,663,274 Gain on foreign currency translation 23,705,226 49,280,271 Gain on disposal of property and equipment 552,395 1, 111, 012 Gain on disposal of intangible assets 65,632 - Gain on disposal of investment property 839,142 622,401 Rental revenue - 7,771 Reversal of other impairment loss 12,592,366 756,165 Others 5,094,352 9,341,930 W 89,536,330 107,782,824
(In thousands of won) , 2018 2017
Other expense Loss on foreign currency transaction W 43,330,976 90,375,808 Loss on foreign currency translation 15,295,047 63,413,050 Impairment loss of investment property - 9,452,578 Impairment loss of intangible assets 2,010,167 - Loss on disposal of property and equipment 380,737 690,121 Loss on disposal of intangible assets 1,100 - Other impairment loss 21,728,971 20,122,841 Others 23,851,143 18,210,719 W 106,598,141 202,265,117
78 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
24. Finance Income and Costs
Finance income and costs for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017
Finance income Gain on foreign currency transaction W 905,157 5,671,023 Gain on foreign currency translation 6,022,605 6,167,605 Interest income 61,206,124 46,636,107 Dividend income 172,358 367,247 Gain on valuation of financial assets at FVPL 5,969,088 - Gain on disposal of subsidiaries and associates 22,798 15,476,716 W 74,298,130 74,318,698
(In thousands of won) 2018 2017
Finance costs Loss on foreign currency transaction W 20,000 509,085 Loss on foreign currency translation 5,771,423 41,102,961 Interest expense 8,275,847 10,708,400 Loss on disposal of financial assets at FVPL 27,396 - Loss on valuation of financial assets at FVPL 835,586 - Loss on disposal of available-for-sale financial assets - 1,068,474 Impairment loss on available-for-sale financial assets - 3,792,120 Loss on disposal of subsidiaries and associates 10,597 - Impairment loss on subsidiaries and associates 55,668 1,644,500 W 14,996,517 58,825,540
79
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
25. Income Tax Expenses
(1) Income tax expenses for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017
Current tax W 100,807,182 170,017,979 Adjustment for prior years 113,296,947 7,385,541 Deferred tax due to temporary differences (21,660,236) (57,807,845) Deferred tax charged directly to equity 4,050,819 (4,343,938) Adjustment on initial application of new accounting standards (No.1109, No.1115) 18,160,563 - Income tax expenses W 214,655,275 115,251,737
(2) The tax effect relating to equity (components of other comprehensive income) for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017 Before tax Tax effect After tax Before tax Tax effect After tax
Changes in the fair value of available-for-sale financial assets W - - - 2,930,341 (758,542) 2,171,799 Changes in the fair value of financial assets at FVOCI 4,820,881 (1,178,353) 3,642,528 - - - Remeasurements of net defined benefit liabilities (41,576,495) 10,162,417 (31,414,078) (21,988,077) 5,691,786 (16,296,291) W (36,755,614) 8,984,064 (27,771,550) (19,057,736) 4,933,244 (14,124,492)
(3) Reconciliation between profit before income tax and income tax expense for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017
Profit before income tax W 493,747,283 434,591,521 Tax at domestic tax rates applicable to profit in the respective countries 125,968,722 98,390,516 Adjustments: Expenses not deductible for tax purposes 5,448,242 2,921,177 Tax credits (3,263,118) (40,915,313) Current adjustments for prior years 113,296,947 7,385,541 Others (26,795,518) 47,469,816 Income tax expense W 214,655,275 115,251,737 Average effective tax rate 43.5% 26.5%
80
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
25. Income Tax Expenses, Continued
(4) The analysis of deferred tax assets and liabilities as of December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 December 31, 2017 Deferred tax assets Deferred tax asset to be recovered after more than 12 months W 102,598,709 88,931,645 Deferred tax asset to be recovered within 12 months 87,567,202 81,310,338 W 190,165,911 170,241,983 Deferred tax liabilities Deferred tax liabilities to be recovered after more than 12 months (60,613,494) (62,431,468) Deferred tax liabilities to be recovered within 12 months (13,601,769) (13,520,104) W (74,215,263) (75,951,572) W 115,950,648 94,290,411
(5) The movement in deferred tax assets and liabilities during the period, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:
(In thousands of won) 2018 2017 Statement Statement Beginning of profit or Ending Beginning of profit or Ending balance loss Equity balance balance loss Equity balance
Accrued income W (7,470,301) (1,962,216 ) - (9,432,517) (6,682,302) (787,999) - (7,470,301) Provision for impairment 61,210,132 7,315,234 - 68,525,366 36,964,001 24,246,131 - 61,210,132 Accrued expenses 3,063,521 (30,510) - 3,033,011 3,319,384 (255,863) - 3,063,521 Provisions 41,325,019 4,382,980 - 45,707,999 29,118,127 12,206,892 - 41,325,019 Available-for- sale financial assets 561,952 (561,952) - - (303,594) 1,009,533 (143,987) 561,952 Orders on hand (13,665,738) 9,058,078 - (4,607,660) (23,512,583) 9,846,845 - (13,665,738) Others 9,265,826 (592,196) 4,050,819 12,724,449 (2,420,466) 15,886,243 (4,199,951) 9,265,826 W 94,290,411 17,609,418 4,050,819 115,950,648 36,482,567 62,151,782 (4,343,938) 94,290,411
Realization of the future tax benefits related to deferred tax assets is dependent on many factors, including the Group’s ability to generate taxable income within the period during which the temporary differences reverse, the outlook of the Korean economic environment and the overall future industry outlook. Management periodically considers these factors in reaching its conclusion and recognized deferred tax assets since all the future (deductible) tax benefits are determined to be realizable, except for investment in associates which the Group has no plan of disposing in the expectable future as at December 31, 2018.
81
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
26. Commitments and Contingencies
(1) The payment guarantees provided to others as of December 31, 2018, are as follows:
(a) The payment guarantees provided to others(excluding related parties)
Execution (In thousands of won) Beneficiary Guarantee limit amount
Redevelopment reconstruction joint GWANGJU GAKHWA HOUSING guarantee COOPERATIVE and others W 165,100,000 127,000,000 SOC cash deficiency support INCHEON GIMPO HIGHWAY and others 6,480,000 - Intermediate payment group Anyang Pyeongchon Officetel and loans others 868,330,135 729,003,798 Defective guarantee POSCO ENGINEERING CO., LTD. 163,472 163,472
(b) Details of guarantees provided by the Group for the PF borrowings of developer as of December 31, 2018, which are not included in (a) above, are as follows:
(In thousands of won) Type of bonds Guarantee Execution Maturity Description of Business area institution limit amount date guarantee Typ e Gwangju Other W 39,000,000 30,000,000 2020-10-23 Joint guarantee ABSTB Gyeongsangbuk-do Other 20,400,000 17,000,000 2020-10-23 Joint guarantee ABSTB Gyeonggi-do Other 48,000,000 40,000,000 2019-08-02 Joint guarantee ABCP Daegu Other 15,000,000 12,500,000 2022-12-14 Joint guarantee ABS Daegu Other 15,000,000 12,500,000 2022-12-14 Joint guarantee Loan Daegu Other 96,000,000 80,000,000 2022-06-17 Joint guarantee ABS Gyeonggi-do Other 52,000,000 40,000,000 2020-03-17 Joint guarantee ABSTB Gyeonggi-do Other 65,000,000 50,000,000 2022-02-27 Joint guarantee ABSTB Seoul Other 149,000,000 149,000,000 2019-03-15 Debt acceptance ABL Sejong Other 48,000,000 40,000,000 2021-01-25 Joint guarantee Loan Gangwon-do Other 101,530,000 78,100,000 2019-04-05 Joint guarantee ABCP Gyeonggi-do Other 84,000,000 70,000,000 2021-09-14 Joint guarantee ABS Gyeonggi-do Other 36,000,000 30,000,000 2020-02-20 Joint guarantee ABSTB Gyeonggi-do Other 39,000,000 30,000,000 2020-10-07 Joint guarantee ABSTB Gyeonggi-do Other 91,000,000 70,000,000 2020-10-07 Joint guarantee ABSTB W 898,930,000 749,100,000
In addition, the Group provides joint guarantee of W2,290,607 million for housing guarantee and business performance guarantee of HOUSING & URBAN GUARANTEE CO. and CONSTRUCTION GUARANTEE COOPERATIVE issued by the partners of the Group.
(c) The Group provides arrangements of conditional liabilities (limit: W5,368,000 million, execution: W3,573,906 million) which exists to certain projects(Pangyo Daejang-dong Apartment house building Construction and others) for completion of construction.
82
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
26. Commitments and Contingencies, Continued
(2) Collateral provided to others as of December 31, 2018, are as follows:
As of December 31, 2018, the Group provided 6 checks (amount issued: W45,996 million) and 7 blank checks as collateral for performance guarantee, performance guarantee of advance received and warranty guarantee.
In addition, the Group provides W85 million of deposits as collateral to SEOUL GUARANTEE INSURANCE COMPANY, related to various license deposits, and W1,338 million of deposit as collateral to HOUSING & URBAN GUARANTEE CORPORATION, related to Gaepo Public official Apartment 8th complex Development Project. Also, the Group provides W1,100 million of deposits as collateral to GANGNAM N TOWER project for completion of construction, and W737 million are pledged for leasehold deposits of G tower.
Additionally, the Group provided deposit of W10,133 million of investment in associates and W16,349 million of financial assets at fair value are provided as collateral with regards to guarantees of the investee company.
(3) Details of guarantees provided to the Group as of December 31, 2018, are as follows:
(In thousands of won and thousands of US dollar) Guarantee Guarantor Amount Description of Guarantee
POSCO ENGINEERING CO., LTD. W 938,138 Warranty guarantee and others SEOUL GUARANTEE INSURANCE COMPANY W 319,523,192 Performance guarantee and others ENGINEERING GURANTEE
INSURANCE W 257,423,005 Performance guarantee and others1 CONSTRUCTION GUARANTEE
COOPERATIVE W 106,453,247 Performance guarantee and others HOUSING & URBAN GUARANTEE Housing distribution guarantee and warranty
CO. W 1,204,778,253 guarantee THE EXPORT-IMPORT BANK OF Performance guarantee, guarantee for refund of KOREA and others $ 2,250,243 advance receipts
W 1,889,115,835 $ 2,250,243
1 The Group has provided collateral for the investment related to engineering guarantee insurance.
83
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
26. Commitments and Contingencies, Continued
(4) Contingencies as of December 31, 2018, are as follows:
As of December 31, 2018, the Group has a comprehensive limit agreement amounting to USD 1,918 million with a financial institution for the payment guarantee and purchase L/C (exercised amount: payment guarantee of USD 584 million and purchase L/C of USD 47 million) and has a limit agreement amounting to USD 2,562 million (exercised amount: USD 1,619 million) for performance bond and guarantee for refund of advance received. Other key contingencies are subscribed as below.
(a) Details of major commitments with financial institutions as of December 31, 2018, are as follows:
(In thousands of won and thousands of US dollar ) Guarantee Execution Financial institution amount amount
Trade receivables factoring KEB HANA BANK and
discount others W 615,000,000 - SHINHAN BANK and Notes receivable factoring discount others W 220,000,000 - Foreign currency receivable DEUTSCHE BANK and factoring limit others $ 40,000 - Derivative instruments SHINHAN BANK $ 20,000 -
The Group derecognizes the trade receivables from the financial statements and recognizes a gain or loss on disposal on the date when substantially all the risks and rewards are transferred. There is no transferred trade receivables outstanding as of December 31, 2018.
(5) Major insurance status
As of December 31, 2018, the Group has construction-related insurance for up to amount W5,080,267 million and insurance on goods for up to amount W1,300,190 million which are provided by HYUNDAI MARINE & FIRE INSURANCE CO., LTD. and others.
84 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
26. Commitments and Contingencies, Continued
(6) Others as of December 31, 2018, are as follows:
The Group entered into following agreements regarding non-guarantee public bonds and violation of following agreements can cause the loss of the advantageous terms.
Debentures 6-2 Debentures 7-1, 7-2
Amount ￦100 billion ￦200 billion Debt ratio Managing the ratio below 500% Managing the ratio below 500% Less than 200% of the equity as of Less than 500% of the equity as of Security right setting limit previous year end previous year end Restricted to dispose more than Restricted to dispose 100% of total Asset disposal restriction ￦5 trillion assets
As of December 31, 2018, the Group has 4 pending litigations and arbitration cases overseas as a defendant. The total value of claims for damages against the Group amounts to W27,295 million. In addition, the Group has 10 domestic cases with claims for damages amounting to W22,530 million. The outcome of the cases and the effect on the consolidated financial statements could not be reasonably estimated as of the end of the reporting period.
85
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
27. Related Party Transactions
(1) List of related parties as of December 31, 2018, and 2017 are as follows:
1) As of December 31, 2018 and 2017, the Parent Company is HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD.
2) Details of associates and other related parties that have sales and other transactions with the Group or have receivables and payables balances as of December 31, 2018 are as follows:
Related party
Investment companies HYUNDAI GLOVIS CO., LTD. With significant influence KIA MOTORS CORPORATION HYUNDAI MOBIS CO., LTD. Associates HYUNDAI ENGINEERING (THAILAND) CO., LTD. LHT INTERNATIONAL ENGINEERING JOING STOCK COMPANY DAMAYNG GREEN DEVELOPMENT CO., LTD. INCHEON GANGHWA INDUSTRIAL COMPLEX CO., LTD. KM ENERGY CO., LTD. SEJONG MIRAE INDUSTRIAL COMPLEX CO., LTD. THE HS-CITY EXPRESSWAY HAEVICHI COUNTRY CLUB., LTD. HYUNDAI ENGINEERING(CAMBODIA) CO., LTD. Other related parties1 HYUNDAI MOTORS COMPANY HYUNDAI STEEL COMPANY Companies included in the HYUNDAI MOTOR COMPANY GROUP
1 The Group and the Parent Company are included in the HYUNDAI MOTOR COMPANY GROUP.
86
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
27. Related Party Transactions, Continued
(2) Sales and purchases with related parties for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 Acquisition of non- Disposal of non- Sales Purchase current assets current assets Parent company HYUNDAU ENGINEERING & CONSTRUCTION CO., LTD. W 25,203,947 61,160,463 - - Companies with significant influence KIA MOTORS CORPORATION 152,422,905 449,005 31,565 - HYUNDAI MOBIS CO., LTD. 32,207,791 1,610,736 - - HYUNDAI GLOVIS CO., LTD. 10,545,965 46,650,460 - 46,455 Associates HYUNDAI ENGINEERING (THAILAND) CO.,LTD. and others 81,788 369,483 - - Others HYUNDAI MOTORS COMPANY 556,171,174 8,235,073 211,203 - HYUNDAI STEEL COMPANY 118,623,055 79,232,404 - - HYUNDAI WIA 25,569,684 86,005 - - HYUNDAI DYMOS INC and others 829,004,993 58,884,217 2,135,770 - W 1,749,831,302 256,677,846 2,378,538 46,455
(In thousands of won) 2017 Acquisition of non- Disposal of non- Sales Purchase current assets current assets Parent company HYUNDAU ENGINEERING & CONSTRUCTION CO., LTD. W 34,782,586 17,896,618 24,957 - Companies with significant influence KIA MOTORS CORPORATION 150,431,650 364,622 - - HYUNDAI MOBIS CO., LTD. 86,049,913 1,712,689 - - HYUNDAI GLOVIS CO., LTD. 21,973,804 19,209,481 - - Associates HYUNDAI ENGINEERING (THAILAND) CO.,LTD. and others 35,837,529 550,535 - - Others HYUNDAI MOTORS COMPANY 645,144,143 7,294,793 273,422 - HYUNDAI STEEL COMPANY 147,736,701 64,657,313 - - HYUNDAI WIA 46,383,563 895,343 - - HYUNDAI DYMOS INC and others 399,221,273 79,674,206 5,636,874 - W 1,567,561,162 192,255,600 5,935,253 -
The Group provides asset management and construction services to related parties, and concludes real estate leasing and brand use contracts, and is provided with logistics and transportation services.
87 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
27. Related Party Transactions, Continued
(3) Outstanding balances arising from sales/purchases of goods and services as of December 31, 2018 and 2017 are as follows:
(In thousands of won) December 31, 2018 Trade Other Trade Other receivables Loans receivables payables payables Parent company HYUNDAU ENGINEERING & CONSTRUCTION CO., LTD. W 3,906,613 - 11,899,369 9,295,190 6,225,789 Companies with significant influence KIA MOTORS CORPORATION 45,236,047 - 10,000 - 17,323 HYUNDAI MOBIS CO., LTD. 4,526,620 - 26,908 305 475,437 HYUNDAI GLOVIS CO., LTD. 535,114 - - 10,041,050 - Associates HYUNDAI ENGINEERING (THAILAND) CO., LTD. and others 6,219,678 19,075,628 5,198,740 - 12,351 Others HYUNDAI MOTORS COMPANY 170,838,021 - 1,179,428 1,716 2,018,089 HYUNDAI STEEL COMPANY 37,600,746 - - 32,256,021 565,014 HYUNDAI WIA 16,710,547 - 637,882 - 919 HYUNDAI DYMOS INC and others 84,472,448 - 11,899,264 2,177,279 9,425,006 W 370,045,834 19,075,628 30,851,591 53,771,561 18,739,928
88
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
27. Related Party Transactions, Continued
(3) Outstanding balances arising from sales/purchases of goods and services as of December 31, 2018 and December 31, 2017 are as follows: continued
(In thousands of won) December 31, 2017 Trade Other Trade Other receivables Loans receivables payables payables Parent company HYUNDAU ENGINEERING & CONSTRUCTION CO., LTD. W 3,542,544 - 14,333,089 723,629 5,672,759 Companies with significant influence KIA MOTORS CORPORATION 50,394,495 - 14,177 - 20,907 HYUNDAI MOBIS CO., LTD. 29,966,050 - 21,136 - 533,854 HYUNDAI GLOVIS CO., LTD. 5,332,967 - 520 711,049 - Associates HYUNDAI ENGINEERING (THAILAND) CO., LTD. and others 12,662,073 19,049,030 5,279,083 - 16,938 Others HYUNDAI MOTORS COMPANY 164,928,779 - 1,112,754 - 1,840,668 HYUNDAI STEEL COMPANY 50,969,212 - 251 11,879,415 320,028 HYUNDAI WIA 18,782,853 - 142,095 - - HYUNDAI DYMOS INC and others 52,088,369 - 10,230,997 9,089,811 56,054,492 W 388,667,342 19,049,030 31,134,102 22,403,904 64,459,646
In addition, as of December 31, 2018, due from customers for contract work and due to customers for contract work recognized by using the percentage-of-completion method on uncompleted construction contracts with related parties amounted to W47,098 million (December 31, 2017: W53,564 million) and W53,935 million (December 31, 2017: W57,329 million), respectively.
As of December 31, 2018, the Group has provision for impairment of W24,102 million (December 31, 2017: W 24,291 million) for the loans and other receivables of W24,243 million (December 31, 2017: W24,323 million) to HYUNDAI ENGINEERING (THAILAND) CO., LTD., an associate.
As of December 31, 2018, the Group has provision for impairment of W25 million (December 31, 2017: W25 million) for the loans and other receivables of W27 million (December 31, 2017: W25 million) to HYUNDAI ENGINEERING (CAMBODIA) CO., LTD., an associate.
89
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
27. Related Party Transactions, Continued
(4) Financial transaction with related parties as of December 31, 2018 and 2017 are as follows:
(In thousands of won) December 31, 2018 Loans Dividend Lease Withdrawal Translation Investment Payment Receipt Parent company and companies with significant influence HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD. W - - - - 35,196,000 - HYUNDAI GLOVIS CO., LTD. - - - - 10,640,880 - KIA MOTORS CORPORATION - - - - 8,520,240 - HYUNDAI MOBIS CO., LTD - - - - 8,520,240 - Associates HYUNDAI ENGINEERING(THAILAND) CO., LTD. ------HYUNDAI ENGINEERING(CAMBODIA) CO., LTD. - - 1,163 - - - DONGBUK LRT CO., LTD. - - - 2,464,000 - - TINA HYDROPOWER LIMITED - - - 384,779 - - SMART VALLEY INDUSTRIAL COMPLEX CO., LTD. - - - 200,000 - - LHT INTERNATIONAL ENGINEERING JOINT STOCK COMPANY - - - - - 17,788
(In thousands of won) December 31, 2017 Loans Dividend Lease Withdrawal Translation Investment Payment Receipt Parent company and companies with significant influence HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD. W - - - - 35,196,000 - KIA MOTORS CORPORATION - - - - 10,640,880 - HYUNDAI MOBIS CO., LTD. - - - - 8,520,240 - HYUNDAI GLOVIS CO., LTD. - - - - 8,520,240 - Associates HYUNDAI ENGINEERING(THAILAND) CO., LTD. ------HYUNDAI ENGINEERING(CAMBODIA) CO., LTD. 26,598 - (1,163) - - - UZLITI Engineering - - - 25,378 - - CHONGJU OKSAN2 INDUSTRIAL COMPLEX DEVELOPMENT CO., LTD. - - - 2,000 - - LHT INTERNATIONAL ENGINEERING JOINT STOCK COMPANY - - - - - 19,316
90 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
27. Related Party Transactions, Continued
(5) Details of guarantees and collateral provided to related parties as of December 31, 2018, are as follows:
(In thousands of won)
Guaranteed Guarantee Guaranteed by amount
Cash deficiency support NONGHYUP BANK and and others The HS-CITY EXPRESSWAY others W 3,512,556
(6) The compensation paid or payable to key management for employee services amounted to W21,478 million (2017: W21,674 million) for the year ended December 31, 2018.
91
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
28. Supplemental Cash Flow Information
(1) Reconciliations between operating profit and net cash inflow (outflow) from operating activities for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017
Expenses not involving cash outflows Depreciation W 7,661,472 9,637,941 Amortization 43,580,612 51,639,572 Accrual for defined benefit obligation 30,253,869 34,222,639 Other long-term employee benefits 1,968,956 973,171 Loss on foreign currency translation 21,066,470 104,516,012 Impairment loss 4,965,037 38,985,390 Other impairment loss 21,728,971 20,122,841 Provision for construction warranties 30,923,848 37,245,485 Provision for expected loss 31,321,852 13,401,612 Equity losses on investments 3,268,458 1,204,377 Impairment loss on inventories 549,230 1,684,097 Loss on disposal of property, plant and equipment 380,737 690,121 Impairment loss on investment assets - 9,452,578 Loss on disposal of intangible assets 1,100 - Loss on disposal of available-for-sale financial assets - 1,068,474 Impairment loss on available-for-sale financial assets - 3,792,120 Loss on disposal of subsidiaries and associates 10,597 - Impairment loss on subsidiaries and associates 55,668 1,644,500 Interest expense 8,275,847 10,708,400 Income tax expense 214,655,275 115,251,737 Miscellaneous loss 123,765 - Loss on disposal of financial assets at FVPL 27,396 - Loss on valuation of financial assets at FVPL 835,586 - Provision for litigation 15,047,099 - Impairment loss on disposal of intangible assets 2,010,167 - Others - 10,118,474 W 438,712,012 466,359,541
92
HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
28. Supplemental Cash Flow Information, Continued
(1) Reconciliations between operating profit and net cash inflow (outflow) from operating activities for the years ended December 31, 2018 and 2017, are as follows: continued
(In thousands of won) 2018 2017
Income not involving cash inflows Interest income W 61,206,124 46,636,107 Gain on foreign currency translation 29,727,832 55,447,876 Gain on disposal of property, plant and equipment 552,395 1, 111, 012 Gain on disposal of intangible assets 65,632 - Gain on disposal of investment assets 839,142 622,401 Reversal of provision for construction losses 15,000,052 17,464,935 Reversal of provision for expected loss 814,391 - Gain on valuation of financial assets at FVPL 5,969,088 - Gain on disposal of subsidiaries and associates 22,798 15,476,716 Reversal of other impairment loss 12,592,366 756,165 Dividend income 172,358 367,247 Equity income on investments 1,084,305 363,218 Others - 4,500,000 W 128,046,483 142,745,677
(2) Significant transactions not affecting cash flows for the years ended December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017
Reclassification of current portion of debentures W 100,000,000 - Reclassification of long-term financial instruments 1,130,086,000 245,368,618
(3) Changes in liabilities arising from financial activities for the year ended December 31, 2018, are as follows:
(In thousands of won) Non-cash changes At January 1, At December 31, 2018 Cash flows Reclassification Amortization 2018
Dividend payable W 1,590 (86,963,666) 86,964,072 - 1,996 Current portion of debentures - - 100,000,000 (65,984) 99,934,016 Short-term borrowings - 5,798,663 - - 5,798,663 Debentures 299,419,420 - (100,000,000) 288,964 199,708,384 W 299,421,010 (81,165,003) 86,964,072 222,980 305,443,059
93 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
29. Financial Risk Management
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize any adverse effects on the financial performance of the Group.
(1) Foreign exchange risk
Foreign exchange risk arises when foreign currency assets and liabilities recognized as at December 31, 2018, are presented in a currency, other than the functional currency. As at December 31, 2018 and 2017, the book amount of foreign currency assets and liabilities exposed to foreign exchange risk and the effects on profit before income tax expense and equity if the foreign exchange rate of the Korean won has increased/decreased by 10% with all other variables held constant, are as follows:
(In thousands of won) 2018 Impact on profit or loss before tax Book amount and equity Assets Liabilities Increase(10%) Decrease(10%)
USD W 661,270,099 567,558,830 9,371,127 (9,371,127) VND 71,899,831 70,315,054 158,478 (158,478) MYR 43,978,254 47,191,754 (321,350) 321,350 SGD 36,947,199 152,689 3,679,451 (3,679,451) JPY 28,405,295 12,854,470 1,555,082 (1,555,082) Others 123,668,806 285,202,760 (16,153,395) 16,153,395 W 966,169,484 983,275,557 (1,710,607) 1,710,607
(In thousands of won) 2017 Impact on profit or loss before tax Book amount and equity Assets Liabilities Increase(10%) Decrease(10%)
USD W 467,205,969 261,272,799 20,593,317 (20,593,317) EUR 42,995,969 53,622,469 (1,062,650) 1,062,650 CNY 26,462,629 37,224,335 (1,076,171) 1,076,171 SAR 1,980,413 55,986,704 (5,400,629) 5,400,629 MYR 34,031,412 17,224,949 1,680,646 (1,680,646) Others 137,652,944 163,880,197 (2,622,725) 2,622,725 W 710,329,336 589,211,453 12,111,788 (12,111,788)
94 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
29. Financial Risk Management, Continued
(2) Interest rate risk
Interest rate risk is the risk that changes in interest income or expense arising from deposits or borrowings will fluctuate as a result of changes in market interest rates in the future, which mainly arise from deposits and borrowings under variable interest rate terms. The Group's interest rate risk management objective is to maximize the value of the company by seeking to minimize uncertainty and net interest expense due to interest rate fluctuations.
The effect of all other variables at the balance sheet date and the change in interest rate of 100bp on profit or loss before income taxes is as follows.
(In thousands of won) 2018 2017 Increase(10%) Decrease(10%) Increase(10%) Decrease(10%)
Short-term borrowings W (25,451) 25,451 - -
(3) Price risk
Most of the investment classified as financial assets at FVPL in the statement of financial position are not exposed to price risk because the fair value of unlisted securities is not significantly changed.
95 HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
29. Financial Risk Management, Continued
(4) Credit risk
Credit risk is managed at the Group level. Credit risk is from trade receivables that the Group holds from operating activities such as construction contracts and loans from related parties, but also from cash and cash equivalents, and deposits in banks and financial institutions. Deposits in banks and financial institutions are made to financial institutions such as Korea Exchange Bank and other major institutions with favorable reputation, so credit risk is limited. If a customers with operating activities such as construction contract are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors.
The maximum exposure to credit risk as of December 31, 2018 and 2017, is as follows:
(In thousands of won) December 31, 2018 December 31, 2017 Maximum Maximum Book amount exposure Book amount exposure
Cash and cash equivalents W 523,992,067 523,992,067 745,387,135 745,387,135 Short-term and long-term financial instruments 1,731,823,575 1,731,823,575 1,785,611,618 1,785,611,618 Trade receivables 878,698,322 878,698,322 1,039,348,277 1,039,348,277 Other receivables 233,981,096 233,981,096 183,534,834 183,534,834 Long-term other receivables 551,626,591 551,626,591 465,589,290 465,589,290 Available-for-sale financial assets - - 45,225,856 45,225,856 Financial assets at FVPL 30,903,442 30,903,442 - - Financial assets at FVOCI 34,740,852 34,740,852 - - Financial guarantee liabilities 29,177,427 1,615,096,798 26,723,475 1,179,557,613 W 4,014,943,372 5,600,862,743 4,291,420,485 5,444,254,623
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
29. Financial Risk Management, Continued
(5) Liquidity risk
The Group monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. The Group’s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.
Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the Group’s financial department. The financial department invests surplus cash in interest- bearing current accounts, time deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts. As at December 31, 2018, the Group has cash and cash equivalents and short-term financial instruments of W2,254,464 million (2017: W1,945,901 million) that are expected to readily generate cash inflows for managing liquidity risk.
Details of the Group’s liquidity risk analysis as at December 31, 2018 and 2017, are as follows:
(In thousands of won) December 31, 2018 Between Less than 1 year 1 and 5 years Total
Trade payables W 933,122,780 - 933,122,780 Other payables 152,644,698 - 152,644,698 Debentures 112,533,302 207,399,000 319,932,302 Long-term other payables - 103,053,645 103,053,645 Financial guarantee liabilities 1,615,096,798 - 1,615,096,798 W 2,813,397,578 310,452,645 3,123,850,223
(In thousands of won) December 31, 2017 Between Less than 1 year 1 and 5 years Total
Trade payables W 931,245,258 - 931,245,258 Other payables 73,929,284 - 73,929,284 Debentures 7,575,000 314,243,750 321,818,750 Long-term other payables - 82,918,813 82,918,813 Financial guarantee liabilities 1,179,557,613 - 1,179,557,613 W 2,192,307,155 397,162,563 2,589,469,718
The above amounts are the undiscounted amounts and include interest expenses.
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HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2018 and 2017
29. Financial Risk Management, Continued
(6) Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so the Group can continue to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.
Consistent with others in the industry, the Group monitors capital on the basis of the debt-to-equity ratio. This ratio is calculated as net debt divided by total capital.
Debt-to-equity ratio as at December 31, 2018 and 2017, are as follows:
(In thousands of won) 2018 2017
Total liability(A) W 2,863,610,808 2,991,529,047 Total equity(B) 3,383,282,294 3,334,423,589 Debt ratio(A/B) 85% 90%
30. United States Dollar Amounts
The Group operates primarily in Korean won and its accounting records are maintained in Korean won. The U.S. dollars amounts, provided herein, represent supplementary information, solely for the convenience of the reader. All won amounts are expressed in U.S. dollars at US $1: W1,118.1, the exchange rate in effect on December 31, 2018. Such presentation is not in accordance with accounting principles generally accepted in either the Republic of Korea or the United States, and should not be construed as a representation that the won amounts shown could be readily converted, realized or settled in U.S. Dollars at this or any other rate.
The December 31, 2017 U.S. dollar amounts, which were previously expressed at US $1: W1,071.4, respectively, the rate in effect on December 31, 2017 have been restated to reflect the exchange rate in effect on December 31, 2018.
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