Hyundai Engineering Co., Ltd. and Subsidiaries

HYUNDAI ENGINEERING CO., LTD. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019

ATTACHMENT: INDEPENDENT AUDITORS’ REPORT

HYUNDAI ENGINEERING CO., LTD.

Contents

INDEPENDENT AUDITORS’ REPORT ------1

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ------5

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ------9

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY ------11

CONSOLIDATED STATEMENTS OF CASH FLOWS ------13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------17

Deloitte Anjin LLC 9F., One IFC, 10, Gukjegeumyung-ro, Youngdeungpo-gu, Seoul 07326, Korea

Tel: +82 (2) 6676 1000 Fax: +82 (2) 6674 2114 www.deloitteanjin.co.kr

INDEPENDENT AUDITORS’ REPORT

English Translation of Independent Auditors’ Report Originally Issued in Korean on March 4, 2020.

To the Shareholders and the Board of Directors of HYUNDAI ENGINEERING CO., LTD.:

Our Opinion

We have audited the accompanying consolidated financial statements of HYUNDAI ENGINEERING CO., LTD. and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as of December 31, 2019, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2019, and its financial performance and its cash flows for the year then ended in accordance with Korean International Financial Reporting Standards (“K-IFRSs”).

Basis for Audit Opinion

We conducted our audit in accordance with the 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 audit 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, 2019. 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. 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.

As of December 31, 2019, the major audit procedures we performed regarding the impact of uncertainty in the Group’s estimated total contract costs in the consolidated financial statements are as follows:

G Identifying the Group’s business procedures related to estimating and changing the total estimated cost and understanding and evaluating its internal control design. G Identifying the cause of changes for the constructions with significant changes in the total estimated cost and documenting inspection if necessary. G Analytical reviewing and questioning changes in the total estimated cost for each reporting period by the major configuration items. G Identifying the appropriateness of the total estimated cost by comparison of the progress reported to the customer and the percentage of completion used for accounting purpose at major sites. G Comparing material costs, outsourcing expenses and others spent on major projects after the end of the reporting period with details of the total estimated cost as of the end of the reporting period. Other Matter

The consolidated financial statements of the Group for the year ended December 31, 2018, were audited by another auditor who expressed an unmodified opinion on those statements on March 4, 2019.

The accompanying consolidated financial statements as of and for the years ended December 31, 2019 and 2018, have been translated into US 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 US dollars on the basis set forth in Note 31 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 of the accompanying consolidated financial statements in accordance with K-IFRSs, and for such internal control as they determine 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 of the Group 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:

G 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 audit 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. G 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.

-2- G Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. G Conclude on the appropriateness of the 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. G 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.

We communicate with those charged with governance of the Group 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.

March 4, 2020

Notice to Readers

This report is effective as of March 4, 2020, the auditors’ report date. Certain subsequent events or circumstances may have occurred between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the consolidated financial statements and may result in modifications to the auditors’ report.

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HYUNDAI ENGINEERING CO., LTD. (the “Company”) AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

The accompanying consolidated financial statements, including all footnote disclosures, were prepared by, and are the responsibility of, the Company.

Kim, Chang Hag Chief Executive Officer HYUNDAI ENGINEERING CO., LTD.

Headquarters Address: (Road Name Address) 75, Yulgok-ro, Jongno-gu, Seoul (Phone Number) 02-2134-1114

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HYUNDAI ENGINEERING CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2019 AND 2018

(In thousands of Korean won) Notes 2019 2018

Assets

Current assets Cash and cash equivalents 4,5,29,30 W 1,188,171,056 523,992,067 Short-term financial instruments 4,9,27,30 1,210,000,000 1,730,472,170 Trade receivables 4,6,22,28,30 866,435,588 878,698,322 Due from customers for contract work 6,22,28 380,960,408 543,040,504 Other receivables 4,6,22,28,30 392,336,352 233,981,096 Inventories 7 278,563,102 352,265,930 Other current assets 8,22 587,881,229 510,486,097 4,904,347,735 4,772,936,186 Non-current assets Long-term financial instruments 4,9,27,30 1,423,905 1,351,405 Financial assets at FVPL 4,10,27,30 26,335,903 30,903,442 Financial assets at FVOCI 4,10,27,30 28,150,357 34,740,852 Investments in subsidiaries and associates 11,27,28 25,027,597 18,345,601 Long-term other receivables 4,6,22,28,30 438,827,784 551,626,591 Net defined benefit assets 18 15,705,869 - Property, plant and equipment 12,21 51,132,205 46,147,463 Investment properties 13 58,858,296 34,575,496 Right-of-use assets 14 39,473,215 - Intangible assets 15 636,278,057 637,622,098 Deferred tax assets 26 80,245,193 118,643,968 Other non-current assets 8,22 16,709,631 - 1,418,168,012 1,473,956,916

Total assets W 6,322,515,747 6,246,893,102

(Continued)

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HYUNDAI ENGINEERING CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED)

AS OF DECEMBER 31, 2019 AND 2018

(In thousands of Korean won) Notes 2019 2018

Liabilities

Current liabilities Trade payables 4,28,30 W 844,363,860 933,122,780 Other payables 4,16,28,30 204,861,673 152,644,698 Advances received 22 472,488,481 431,839,649 Due to customers for contract work 22,28 745,977,164 655,125,930 Short-term borrowings 4,17 - 5,798,663 Current portion of long-term liabilities 4,17,27 99,975,977 99,934,016 Lease liabilities 4,14 33,059,425 - Current income tax liabilities 4,750,381 31,834,869 Other current liabilities 16 13,346,665 9,746,889 Current portion of provision 22 58,415,242 48,157,980 Current portion of financial guarantee liabilities 4,30 27,501,671 719,875 2,504,740,539 2,368,925,349 Non-current liabilities Long-term trade payables 4 515,901 - Debentures 4,17,27,30 99,870,583 199,708,384 Long-term other payables 4,16,30 79,917,124 102,266,100 Lease liabilities 4,14 6,208,073 - Net defined benefit liabilities 18,28 181,784 11,496,915 Provision for long-term employee benefits 18 11,914,091 8,995,536 Deferred tax liabilities 26 2,684,642 2,693,319 Provision for other liabilities and charges 22 112,357,825 141,067,653 Financial guarantee liabilities 4,30 - 28,457,552 Other non-current liabilities 16 2,095,270 - 315,745,293 494,685,459

Total liabilities 2,820,485,832 2,863,610,808

Equity

Equity attributable to owners of the Group Share capital 19 37,976,705 37,976,705 Other paid-in capital 19 1,259,364,849 1,259,364,849 Other components of equity 19 (21,741,497) 60,580,612 Retained earnings 20 2,233,138,922 2,031,162,647 3,508,738,979 3,389,084,813

Non-controlling interests (6,709,064) (5,802,519)

Total equity 3,502,029,915 3,383,282,294 Total liabilities and equity W 6,322,515,747 6,246,893,102

(Concluded)

See accompanying notes to consolidated financial statements.

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HYUNDAI ENGINEERING CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2019 AND 2018

(In thousands of US dollars (Note 31) Notes 2019 2018

Assets

Current assets Cash and cash equivalents 4,5,29,30 $ 1,026,231 452,576 Short-term financial instruments 4,9,27,30 1,045,086 1,494,621 Trade receivables 4,6,22,28,30 748,347 758,938 Due from customers for contract work 6,22,28 329,038 469,028 Other receivables 4,6,22,28,30 338,864 202,091 Inventories 7 240,597 304,255 Other current assets 8,22 507,757 440,909 4,235,920 4,122,418 Non-current assets Long-term financial instruments 4,9,27,30 1,230 1,166 Financial assets at FVPL 4,10,27,30 22,747 26,692 Financial assets at FVOCI 4,10,27,30 24,314 30,006 Investments in subsidiaries and associates 11,27,28 21,617 15,845 Long-term other receivables 4,6,22,28,30 379,019 476,444 Net defined benefit assets 18 13,565 - Property, plant and equipment 12,21 44,163 39,858 Investment properties 13 50,836 29,863 Right-of-use assets 14 34,093 - Intangible assets 15 549,558 550,719 Deferred tax assets 26 69,308 102,474 Other non-current assets 8,22 14,431 - 1,224,881 1,273,067

Total assets $ 5,460,801 5,395,485

Liabilities

Current liabilities Trade payables 4,28,30 $ 729,282 805,945 Other payables 4,16,28,30 176,940 131,840 Advances received 22 408,092 372,983 Due to customers for contract work 22,28 644,306 565,837 Short-term borrowings 4,17 - 5,008 Current portion of long-term liabilities 4,17,27 86,350 86,314 Lease liabilities 4,14 28,554 - Current income tax liabilities 4,103 27,496 Other current liabilities 16 11,528 8,419 Current portion of provision 22 50,454 41,594 Current portion of financial guarantee liabilities 4,30 23,753 622 $ 2,163,362 2,046,058

(Continued)

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HYUNDAI ENGINEERING CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED)

AS OF DECEMBER 31, 2019 AND 2018

(In thousands of US dollars (Note 31)) Notes 2019 2018

Non-current liabilities Long-term trade payables 4 $ 446 - Debentures 4,17,27,30 86,258 172,489 Long-term other payables 4,16,30 69,025 88,328 Lease liabilities 4,14 5,362 - Net defined benefit liabilities 18,28 157 9,930 Provision for long-term employee benefits 18 10,290 7,770 Deferred tax liabilities 26 2,319 2,326 Provision for other liabilities and charges 22 97,044 121,841 Financial guarantee liabilities 4,30 - 24,579 Other non-current liabilities 16 1,810 - 272,711 427,263

Total liabilities 2,436,073 2,473,321

Equity

Equity attributable to owners of the Group Share capital 19 32,801 32,801 Other paid-in capital 19 1,087,722 1,087,722 Other components of equity 19 (18,778) 52,324 Retained earnings 20 1,928,778 1,754,329 3,030,523 2,927,176

Non-controlling interests (5,795) (5,012)

Total equity 3,024,728 2,922,164 Total liabilities and equity $ 5,460,801 5,395,485

(Concluded)

See accompanying notes to consolidated financial statements.

The US dollar figures are provided for the convenience of the readers and do not form part of the consolidated financial statements. Refer to Note 31.

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HYUNDAI ENGINEERING CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(In thousands of Korean won) Notes 2019 2018

Sales 21,22,28 W 6,801,060,290 6,286,223,749 Cost of Sales 23,28 (6,052,299,689) (5,499,662,535) Gross profit 21 748,760,601 786,561,214 Selling and administrative expenses 23,28 (340,653,290) (332,869,580) Operation profit 408,107,311 453,691,634 Other income 4,24 89,778,560 89,536,330 Other expenses 4,24,28 (83,592,161) (106,598,141) Financial income 4,25 55,526,659 74,298,130 Financial costs 4,25 (24,404,534) (14,996,517) Share of profit (loss) of associates 11 (1,467,368) (2,184,153) Profit before income tax 443,948,467 493,747,283 Income tax expense 26 (145,477,373) (214,655,275) Profit for the year W 298,471,094 279,092,008

Profit for the year is attributable to: Owners of the Parent Company 299,047,422 286,003,343 Non-controlling interest (576,328) (6,911,336) W 298,471,094 279,092,008

Other comprehensive income (loss) Items not to be reclassified to profit or loss Remeasurements of net defined benefit liabilities (13,173,529) (15,117,787) Change in the fair value of financial assets at FVOCI 950,675 2,916,406 Items that may be subsequently reclassified to profit or loss Currency translation differences (79,080,501) (74,004,223) Other comprehensive income (loss) for the year, net of tax W (91,303,355) (86,205,604)

Total comprehensive income for the year Owners of the Parent Company 207,862,474 199,997,548 Non-controlling interest (694,735) (7,111,144) W 207,167,739 192,886,404

See accompanying notes to consolidated financial statements.

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HYUNDAI ENGINEERING CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(In thousands of US dollars (Note 31)) Notes 2019 2018

Sales 20,21,27 $ 5,874,124 5,429,456 Cost of Sales 22,27 (5,227,414) (4,750,097) Gross profit 20 646,710 679,359 Selling and administrative expenses 22 (294,225) (287,502) Operation profit 352,485 391,857 Other income 23 77,542 77,333 Other expenses 23,27 (72,199) (92,070) Financial income 24 47,959 64,172 Financial costs 24 (21,078) (12,953) Share of profit (loss) of associates 11 (1,267) (1,886) Profit before income tax 383,442 426,453 Income tax expense 25 (125,650) (185,399) Profit for the year $ 257,792 241,054

Profit for the year is attributable to: Owners of the Parent Company 258,290 247,023 Non-controlling interest (498) (5,969) $ 257,792 241,054

Other comprehensive income (loss) Items not to be reclassified to profit or loss Remeasurements of net defined benefit liabilities (11,378) (13,057) Change in the fair value of financial assets at FVOCI 821 2,519 Items that may be subsequently reclassified to profit or loss Currency translation differences (68,302) (63,918) Other comprehensive income (loss) for the year, net of tax $ (78,859) (74,456)

Total comprehensive income for the year Owners of the Parent Company 179,533 172,740 Non-controlling interest (600) (6,142) $ 178,933 166,598

See accompanying notes to consolidated financial statements.

The US dollar figures are provided for the convenience of the readers and do not form part of the consolidated financial statements. Refer to Note 31.

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HYUNDAI ENGINEERING CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(In thousands of Korean won) Attributable to owners of the Company Other Non- Share Other paid- components Retained controlling capital in capital of equity earnings interests Total

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 year - - - 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

Balance at January 1, 2019 W 37,976,705 1,259,364,849 60,580,612 2,031,162,647 (5,802,519) 3,383,282,294 Total comprehensive income (loss) Profit for the year - - - 299,047,422 (576,328) 298,471,094 Change in the fair value of financial assets at FVOCI - - (3,360,015) 3,066,454 - (293,561) Remeasurements of net defined benefit liabilities - - - (13,173,529) - (13,173,529) Currency translation differences - - (78,962,094) - (118,407) (79,080,501) Transactions with owners Dividends to equity holders of the Group - - - (86,964,072) (211,810) (87,175,882) Balance at December 31, 2019 W 37,976,705 1,259,364,849 (21,741,497) 2,233,138,922 (6,709,064) 3,502,029,915

See accompanying notes to consolidated financial statements.

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HYUNDAI ENGINEERING CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(In thousands of US dollars (Note 31)) Attributable to owners of the Company Other Non- Share Other paid- components Retained controlling capital in capital of equity earnings interests Total

Balance at January 1, 2018 $ 32,801 1,087,722 113,550 1,595,475 1,390 2,830,938 Total comprehensive income (loss) ------Profit for the year - - - 247,023 (5,969) 241,054 Change in the fair value of financial assets at FVOCI - - 2,519 - - 2,519 Remeasurements of net defined benefit liabilities - - - (13,057) - (13,057) Currency translation differences - - (63,745) - (173) (63,918) Transactions with owners Dividends to equity holders of the Group - - - (75,111) (260) (75,371) Balance at December 31, 2018 $ 32,801 1,087,722 52,324 1,754,330 (5,012) 2,922,165

Balance at January 1, 2019 $ 32,801 1,087,722 52,324 1,754,330 (5,012) 2,922,165 Total comprehensive income (loss) Profit for the year - - - 258,289 (498) 257,791 Change in the fair value of financial assets at FVOCI - - (2,902) 2,649 - (253) Remeasurements of net defined benefit liabilities - - - (11,378) - (11,378) Currency translation differences - - (68,200) - (102) (68,302) Transactions with owners Dividends to equity holders of the Group - - - (75,111) (183) (75,294) Balance at December 31, 2019 $ 32,801 1,087,722 (18,778) 1,928,779 (5,795) 3,024,729

See accompanying notes to consolidated financial statements.

The US dollar figures are provided for the convenience of the readers and do not form part of the consolidated financial statements. Refer to Note 31.

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HYUNDAI ENGINEERING CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(In thousands of Korean won) Notes 2019 2018

Cash flows from operating activities Profit for the year W 298,471,094 279,092,008 Expenses not involving cash outflows 29 310,873,404 438,712,012 Income not involving cash inflows 29 (98,552,832) (128,046,483) Changes in operating assets and liabilities (43,068,811) (516,894,871) Decrease (increase) in trade receivables (45,563,161) 154,450,906 Decrease (increase) in due from customers for contract work 199,330,868 (312,717,768) Decrease (increase) in other receivables (21,625,512) 24,667,935 Decrease in inventories 73,163,331 42,269,753 Increase in other current assets (72,209,403) (149,022,374) Increase in long-term other receivables (28,094,449) (85,991,145) Increase (decrease) in trade payables (87,504,014) 3,002,014 Increase in other payables 30,218,789 14,048,877 Decrease in advances received (73,624,694) (54,244,560) Increase (decrease) in due to customers for contract work 90,851,233 (106,941,643) Increase (decrease) in other current liabilities 3,056,051 (6,593,715) Increase (decrease) in long-term other payables (8,738,516) 18,574,585 Decrease in defined benefit obligations (26,797,387) (19,436,298) Increase in plan assets (49,687,447) (19,594,098) Decrease in provisions for long-term employee benefits (929,078) (710,465) Decrease in provisions (24,915,422) (18,656,875) Cash generated from operations 467,722,855 72,862,666 Interest received 71,611,254 51,474,496 Dividends received 272,785 172,358 Interest paid (8,827,708) (8,052,866) Income tax paid (132,593,161) (253,663,860) Net cash provided by (used in) operating activities 398,186,025 (137,207,206)

(Continued)

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HYUNDAI ENGINEERING CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(In thousands of Korean won) Notes 2019 2018

Cash flows from investing activities Decrease in short-term financial instruments W 1,700,472,170 1,266,245,000 Decrease in long-term financial instruments - 195,000,000 Proceeds from disposal of financial assets at FVOCI 6,487,383 - Proceeds from disposal of investments in subsidiaries and associates 3,078,174 88,502 Proceeds from disposal of financial assets at FVPL 424,900 - Decrease in other receivables 7,606,452 107,888,297 Decrease in long-term other receivables 8,587,266 2,497,477 Proceeds from disposal of property and equipment 1,868,801 935,857 Proceeds from disposal of intangible assets - 3,888,751 Proceeds from disposal of investment properties 4,314,463 2,395,000 Increase in short-term financial instruments (1,180,000,000) (666,567,837) Increase in long-term financial instruments (72,500) (741,339,405) Purchases of financial assets at FVOCI (157,002) (5,962,269) Purchases of financial assets at FVPL (5,179,698) (4,697,836) Purchases of investments in subsidiaries and associates (11,233,400) (3,104,712) Increase in other receivables - (135,868,081) Increase in long-term other receivables (33,624,989) (3,517,809) Purchases of property and equipment (14,384,665) (11,356,419) Purchases of intangible assets (13,322,801) (2,338,337) Purchases of investment properties - (10,495,000) Net cash provided by (used in) investing activities 474,864,554 (6,308,821)

Cash flows from financing activities Increase in short-term borrowings - 5,798,663 Payment of dividends (87,175,476) (87,264,659) Repayments of lease liabilities (19,212,617) - Repayments of short-term borrowings (5,798,663) - Repayments of current portion of long-term liabilities (100,000,000) - Net cash used in financing activities (212,186,756) (81,465,996)

Net increase (decrease) in cash and cash equivalents 660,863,823 (224,982,023) Cash and cash equivalents at the beginning of the year 523,992,067 745,387,135 Effect of exchange rate changes on cash and cash equivalents 3,315,166 3,586,955 Cash and cash equivalents at the end of the year W 1,188,171,056 523,992,067

(Concluded)

See accompanying notes to consolidated financial statements.

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HYUNDAI ENGINEERING CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(In thousands of US dollars (Note 31)) Notes 2019 2018

Cash flows from operating activities Profit for the year $ 257,792 241,054 Expenses not involving cash outflows 29 268,504 378,919 Income not involving cash inflows 29 (85,121) (110,595) Changes in operating assets and liabilities (37,199) (446,446) Decrease (increase) in trade receivables (39,354) 133,400 Decrease (increase) in due from customers for contract work 172,163 (270,097) Decrease (increase) in other receivables (18,678) 21,306 Decrease in inventories 63,192 36,509 Increase in other current assets (62,368) (128,712) Increase in long-term other receivables (24,265) (74,271) Increase (decrease) in trade payables (75,578) 2,593 Increase in other payables 26,100 12,134 Decrease in advances received (63,590) (46,851) Increase (decrease) in due to customers for contract work 78,469 (92,366) Increase (decrease) in other current liabilities 2,640 (5,695) Increase (decrease) in long-term other payables (7,548) 16,043 Decrease in defined benefit obligations (23,145) (16,787) Increase in plan assets (42,915) (16,924) Decrease in provisions for long-term employee benefits (802) (614) Decrease in provisions (21,520) (16,114) Cash generated from operations 403,976 62,932 Interest received 61,851 44,459 Dividends received 236 149 Interest paid (7,625) (6,955) Income tax paid (114,522) (219,091) Net cash provided by (used in) operating activities 343,916 (118,506)

(Continued)

-15-

HYUNDAI ENGINEERING CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(In thousands of US dollars (Note 31)) Notes 2019 2018

Cash flows from investing activities Decrease in short-term financial instruments $ 1,468,710 1,093,665 Decrease in long-term financial instruments - 168,423 Proceeds from disposal of financial assets at FVOCI 5,603 - Proceeds from disposal of investments in subsidiaries and associates 2,659 76 Proceeds from disposal of financial assets at FVPL 367 - Decrease in other receivables 6,570 93,184 Decrease in long-term other receivables 7,417 2,157 Proceeds from disposal of property and equipment 1,614 808 Proceeds from disposal of intangible assets - 3,359 Proceeds from disposal of investment properties 3,726 2,069 Increase in short-term financial instruments (1,019,174) (575,718) Increase in long-term financial instruments (63) (640,300) Purchases of financial assets at FVOCI (136) (5,150) Purchases of financial assets at FVPL (4,474) (4,058) Purchases of investments in subsidiaries and associates (9,702) (2,682) Increase in other receivables - (117,350) Increase in long-term other receivables (29,042) (3,038) Purchases of property and equipment (12,424) (9,809) Purchases of intangible assets (11,507) (2,020) Purchases of investment properties - (9,065) Net cash provided by (used in) investing activities 410,144 (5,449)

Cash flows from financing activities Increase in short-term borrowings - 5,008 Payment of dividends (75,294) (75,371) Repayments of lease liabilities (16,594) - Repayments of short-term borrowings (5,008) - Repayments of current portion of long-term liabilities (86,371) - Net cash used in financing activities (183,267) (70,363)

Net increase (decrease) in cash and cash equivalents 570,793 (194,318) Cash and cash equivalents at the beginning of the year 452,576 643,796 Effect of exchange rate changes on cash and cash equivalents 2,863 3,098 Cash and cash equivalents at the end of the year $ 1,026,232 452,576

(Concluded)

See accompanying notes to consolidated financial statements.

The US dollar figures are provided for the convenience of the readers and do not form part of the consolidated financial statements. Refer to Note 31.

-16-

HYUNDAI ENGINEERING CO., LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

1. GENERAL INFORMATION:

General information about HYUNDAI ENGINEERING CO., LTD. (the “Company”) and its subsidiaries (collectively referred to as “the Group”) in accordance with Korean International Financial Reporting Standard (“K-IFRS”) No. 1110 Consolidated Financial Statements is as follows:

The Company was spun off from HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD. on January 17, 2001. The Parent Company’s headquarters is located at 75, Yulgok-ro, Jongno-gu, Seoul, Korea.

The 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 Company’s major shareholders and their respective percentage of ownership as of December 31, 2019 and 2018, are as follows:

December 31, 2019 December 31, 2018 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

-17-

1.1 Status of subsidiaries

The subsidiaries as of December 31, 2019, are as follows:

Subsidiaries Country Ownership (%) Year-end Main business

HYUNDAI ENGINEERING PAKISTAN (PRIVATE)

LIMITED Pakistan 100.0 December Construction GALING POWER & ENERGY CONSTRUCTION

CO. INC. Philippines 100.0 December Construction HYUNDAI ENGINEERING MEXICO, S. DE R.L,

DE C.V. Mexico 100.0 December Construction HYUNDAI ENG AMERICA INC. USA 100.0 December Construction HYUNDAI ENGINEERING INDIA PRIVATE

LIMITED India 100.0 March Construction HYUNDAI ENGINEERING (BEIJING) CO., LTD.

(formerly, AMCO CHINA (BEIJING) CO., LTD.) China 90.0 December Construction Facilities AMCO CHINA(RIZHAO) CO., LTD. (*1) China 100.0 December maintenance HYUNDAI ENGINEERING RUS. LLC. Russia 100.0 December Construction HYUNDAI ENGINEERING DEUTSCHLAND

GMBH Germany 100.0 December Construction HYUNDAI ENGINEERING BRASIL CONSTRUCTORA E GESTAO DE PROJETOS LTDA. Brazil 100.0 December Construction HYUNDAI ENGINEERING INSAAT TURIZM

SANAYI VE TICARET LIMITED SIRKETI Turkey 100.0 December Construction 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 67.0 December Construction HYUNDAI ENGINEERING MALAYSIA SDN BHD Malaysia 100.0 December Construction HEC INDIA LLP India 100.0 March Construction HG POWER, LLC (*2) Guam 100.0 December Construction

(*1) It is a subsidiary of HYUNDAI ENGINEERING (BEIJING) CO., LTD. (formerly, AMCO CHINA(BEIJING) CO., LTD.) (*2) Acquired subsidiary investment during the year

-18- 1.2 Summary of financial information related to subsidiaries

Summarized financial information of consolidated subsidiaries as of and for the years ended 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 Net profit Assets Liabilities Equity Sales (loss) HYUNDAI ENGINEERING PAKISTAN(PRIVATE) LIMITED W 3,257,257 23,139,414 (19,882,156) - (686,669) GALING POWER & ENERGY CONSTRUCTION CO. INC. 11,768,769 28,338,090 (16,569,321) (1,070,804) (14,529,149) HYUNDAI ENGINEERING MEXICO, S. DE R.L. DE C.V. 28,901,469 20,608,878 8,292,591 52,679,779 1,844,832 HYUNDAI ENG AMERICA INC 18,995,416 14,903,895 4,091,520 65,422,575 3,873,533 HYUNDAI ENGINEERING INDIA PRIVATE LIMITED 16,360,493 14,684,039 1,676,454 78,151,061 (640,122) HYUNDAI ENGINEERING CO., LTD. (BEIJING) (formerly AMCO CHINA (BEIJING) CO., LTD.) (*) 40,933,054 19,476,496 21,456,559 29,134,910 1,077,608 HYUNDAI ENGINEERING RUS. L.L.C. 13,823,200 8,362,696 5,460,504 37,772,319 2,699,038 HYUNDAI ENGINEERING DEUTSCHLAND GMBH 5,814,340 3,714,231 2,100,109 20,899,347 1,555,140 HYUNDAI ENGINEERING BRASIL CONSTRUTORA E GESTAO DE PROJETOS LTDA. 4,110,781 1,838,354 2,272,427 15,697,335 12,985 HYUNDAI ENGINEERING INSAAT TURIZM SANAYI VE TICARET LIMITED SIRKETI 653,444 139,294 514,150 575,649 37,248 HYUNDAI ENGINEERING CZECH S.R.O. 5,356,284 2,681,613 2,674,671 13,132,936 662,386 HYUNDAI ENGINEERING SLOVAKIA S.R.O. 8,551,899 4,696,544 3,855,355 14,361,494 1,425,717 PT. HEIN GLOBAL UTAMA 49,564,026 76,396,511 (26,832,485) 24,090,874 (2,072,998) HYUNDAI ENGINEERING MALAYSIA SDN BHD 96,481,003 97,194,529 (713,527) 277,467,988 22,676,687 HEC INDIA LLP 54,989,667 31,277,146 23,712,521 115,444,174 10,222,808 HG POWER, LLC 1,389,360 - 1,389,360 - (1,622)

(*) Based on the subsidiary’s consolidated financial statements.

(In thousands of Korean 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

(*) Based on the subsidiary’s consolidated financial statements.

-19- 2. SIGNIFICANT ACCOUNTING POLICIES:

2.1 Basis of Preparation of Consolidated Financial Statements

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.

The Group maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language in accordance with K-IFRSs. 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 K-IFRSs. 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 consolidated 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

(1) New and amended standards adopted by the Group

The Group has applied the following standards and amendments for the first time for its annual reporting period commencing January 1, 2019.

- K-IFRS 1116 – Leases (Enactment)

In the current year, the Group has applied K-IFRS 1116 (as issued by the KASB in November 2017) that is effective for annual periods that begin on or after January 1, 2019.

K-IFRS 1116 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee accounting by removing the distinction between operating and finance lease and requiring the recognition of a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low-value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. Details of these new requirements are described in ‘2.9 Leases.’ The impact of the adoption of K-IFRS 1116 on the Group’s consolidated financial statements is described below.

The date of initial application of K-IFRS 1116 for the Group is January 1, 2019.

The Group has applied K-IFRS 1116 using the cumulative catch-up approach, with these practical expedients: ࡐG To recognize the cumulative effect of initially applying this standard as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the date of initial application. ࡐG Not to restate comparative information applying K-IFRS 1017 Leases and K-IFRS 2104 Determining whether an Arrangement contains a Lease.

ཛ Impact of the new definition of a lease

The Group has made use of the practical expedient available on transition to K-IFRS 1116 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with K-IFRS 1017 and K-IFRS 2104 will continue to be applied to those contracts entered or modified before January 1, 2019.

The change in definition of a lease mainly relates to the concept of control. K-IFRS 1116 determines whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration. This is in contrast to the focus on ‘risks and rewards’ in K-IFRS 1017 and K-IFRS 2104.

The Group applies the definition of a lease and related guidance set out in K-IFRS 1116 to all contracts entered into or changed on or after January 1, 2019.

-20- ཛྷ Impact on lessee accounting

(i) Former operating leases

K-IFRS 1116 changes how the Group accounts for leases previously classified as operating leases under K-IFRS 1017, which were off statements of financial position. Upon applying K-IFRS 1116, for all leases (except as noted below), the Group : ࡐG Recognizes right-of-use assets and lease liabilities in the consolidated statements of financial position, initially measured at the present value of the future lease payments ࡐG Recognizes depreciation of right-of-use assets and interest on lease liabilities in profit or loss ࡐG Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within financing activities) in the consolidated statements of cash flows.

Lease incentives (e.g., rent-free period) are recognized as part of the measurement of the right-of-use assets and lease liabilities, whereas under K-IFRS 1017, they resulted in the recognition of a lease incentive, amortized as a reduction of rental expenses generally on a straight-line basis. Under K-IFRS 1116, right-of-use assets are tested for impairment in accordance with K-IFRS 1036.

For short-term leases (lease term of 12 months or less) and leases of low-value assets, the Group has opted to recognize a lease expense on a straight-line basis as permitted by K-IFRS 1116.

The Group used these practical expedients when applying the cumulative catch-up approach to leases previously classified as an operating lease applying K-IFRS 1017:

ࡐG To apply a single discount rate to a portfolio of leases with reasonably similar characteristics. ࡐG To rely on its assessment of whether leases are onerous applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets immediately before the date of initial application as an alternative to performing an impairment review. ࡐG To elect not to recognize right-of-use asset and lease liability to leases for which the lease term ends within 12 months of the date of initial application. ࡐG To exclude initial direct costs from the measurement of the right-of-use asset at the date of initial application. ࡐG To use hindsight in determining the lease term if the contract contains options to extend or terminate the lease.

(ii) Former finance leases

The main differences between K-IFRS 1116 and K-IFRS 1017 with respect to contracts formerly classified as finance leases is the measurement of the residual value guarantees provided by the lessee to the lessor. K-IFRS 1116 requires that the Group recognizes as part of its lease liability only the amount expected to be payable under a residual value guarantee, rather than the maximum amount guaranteed as required by K-IFRS 1017. This change did not have a material effect on the Group’s consolidated financial statements.

ཝ Impact on lessor accounting

K-IFRS 1116 does not change substantially how a lessor accounts for leases. Under K-IFRS 1116, a lessor continues to classify leases as either finance leases or operating leases and account for those two types of leases differently.

However, K-IFRS 1116 has changed and expanded the disclosures required, in particular, with regard to how a lessor manages the risks arising from its residual interest in leased assets. Under K-IFRS 1116, an intermediate lessor accounts for the head lease and the sublease as two separate contracts. The intermediate lessor is required to classify the sublease as a finance or operating lease by reference to the right-of-use asset arising from the head lease (and not by reference to the underlying asset as was the case under K-IFRS 1017).

Because of this change, the Group has reclassified certain of its sublease agreements as finance leases. As required by K- IFRS 1109, an allowance for expected credit losses has been recognized on the finance lease receivables.

-21- ཞ Financial impact of the initial application of K-IFRS 1116

The lessee’s incremental borrowing rate used when measuring lease liabilities at January 1, 2019, is 2.11%.

Right-of-use assets of ୸16,380 million and lease liabilities of ୸16,380 million were recognized at the date of initial application of K-IFRS 1116.

- K-IFRS 1109 – Financial Instruments (Amendments)

The Group has adopted the amendments to K-IFRS 1109 for the first time in the current year. The amendments to K-IFRS 1109 clarify that for the purpose of assessing whether a prepayment feature meets the ‘solely payments of principal and interest’ (“SPPI”) condition, the party exercising the option may pay or receive reasonable compensation for the prepayment irrespective of the reason for prepayment. In other words, financial assets with prepayment features with negative compensation do not automatically fail SPPI.

- K-IFRS 1028 Long-term Interests in Associates and Joint Ventures (Amendments)

The Group has adopted the amendments to K-IFRS 1028 for the first time in the current year. The amendments clarify that K-IFRS 1109, including its impairment requirements, applies to other financial instruments in an associate or a joint venture to which the equity method is not applied. These include long-term interests that, in substance, form part of the entity’s net investment in an associate or a joint venture. The Group applies K-IFRS 1109 to such long-term interests before it applies K-IFRS 1028. In applying K-IFRS 1109, the Group does not take account of any adjustments to the carrying amount of long-term interests required by K-IFRS 1028 (i.e., adjustments to the carrying amount of long-term interests arising from the allocation of losses of the investee or assessment of impairment in accordance with K-IFRS 1028).

- Annual Improvements to K-IFRS Standards 2015–2017 Cycle

The annual improvements include amendments to four standards, such as K-IFRS 1012 Income Taxes, K-IFRS 1023 Borrowing Costs, K-IFRS 1103 Business Combinations and K-IFRS 1111 Joint Arrangements.

ཛ K-IFRS 1012 Income Taxes The amendments clarify that an entity should recognize the income tax consequences of dividends in profit or loss, other comprehensive income (“OCI”) or equity according to where the entity originally recognized the transactions that generated the distributable profits. This is the case irrespective of whether different tax rates apply to distributed and undistributed profits.

ཛྷ K-IFRS 1023 Borrowing Costs The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalization rate on general borrowings.

ཝ K-IFRS 1103 Business Combinations The amendments to K-IFRS 1103 clarify that when an entity obtains control of a business that is a joint operation, the entity applies the requirements for a business combination achieved in stages, including remeasuring its previously held interest (“PHI”) in the joint operation at fair value. The PHI to be remeasured includes any unrecognized assets, liabilities and goodwill relating to the joint operation.

ཞ K-IFRS 1111 Joint Arrangements The amendments to K-IFRS 1111 clarify that when a party that participates in, but does not have joint control of, a joint operation that is a business obtains joint control of such a joint operation, the entity does not remeasure its PHI in the joint operation.

- K-IFRS 1019 Employee Benefits Plan Amendment, Curtailment or Settlement (Amendments)

The Group has adopted the amendments to K-IFRS 1019 for the first time in the current year. The amendments clarify that the past service cost (or of the gain or loss on settlement) is calculated by measuring the defined benefit liability (asset) using updated assumptions and comparing benefits offered and plan assets before and after the plan amendment (or curtailment or settlement), but ignoring the effect of the asset ceiling (that may arise when the defined benefit plan is in a surplus position). International Accounting Standard (“IAS”) 19 is now clear that the change in the effect of the asset ceiling that may result from the plan amendment (or curtailment or settlement) is determined in a second step and is recognized in the normal manner in OCI.

-22- The paragraphs that relate to measuring the current service cost and the net interest on the net defined benefit liability (asset) have also been amended. The Group will now be required to use the updated assumptions from this remeasurement to determine current service cost and net interest for the remainder of the reporting period after the change to the plan. In the case of net interest, the amendments make it clear that for the period post plan amendment, the net interest is calculated by multiplying the net defined benefit liability (asset) as remeasured under K-IFRS 1019.99 with the discount rate used in the remeasurement (also taking into account the effect of contributions and benefit payments on the net defined benefit liability (asset)).

- K-IFRS 1115 Revenue from Contracts with Customers (Amendment)

The Group has adopted the amendment to K-IFRS 1115 for the first time in the current year. The amendment clarifies that it does not reduce the scope of disclosure even if K-IFRS 1115 is applied by revising the meaning of ‘contract’ referred to in paragraph 129.1 to ‘individual contract’ in relation to ‘additional disclosure of cost application method’. In addition, because K-IFRS 1115 does not distinguish between the types of contracts, service contracts that were not covered by the previous revenue standard, paragraph 145.1, may also be subject to paragraph 129.1 of K-IFRS 1115. This clarifies that the scope of the contract that is subject to the disclosure requirement in accordance with paragraph 129.1 may be broadened compared to the previous revenue standard

- K-IFRS 2123 Interpretation Uncertainty over Income Tax Treatments (Amendments)

K-IFRS 2123 interpretation sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The interpretation requires an entity to: ཛ determine whether uncertain tax positions are assessed separately or as a group and ཛྷ assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings: - If yes, the entity should determine its accounting tax position consistently with the tax treatment used or planned to be used in its income tax filings. - If no, the entity should reflect the effect of uncertainty in determining its accounting tax position.

The Group does not anticipate that the application of the enactment and amendments will have any significant impact on the Group’s consolidated financial statements.

(2) New and revised K-IFRSs in issue, but not yet effective

New and revised standards that have been issued but are not yet effective as of December 31, 2019, and that have not been applied earlier by the Group are as follows:

- K-IFRS 1103 Definition of a Business (Amendment) The amendments clarify that while businesses usually have outputs, outputs are not required for an integrated set of activities and assets to qualify as a business. To be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. Additional guidance is provided that helps to determine whether a substantive process has been acquired.

The amendments introduce an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. Under the optional concentration test, the acquired set of activities and assets is not a business if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar assets.

The amendments are applied prospectively to all business combinations and asset acquisitions for which the acquisition date is on or after the first annual reporting period beginning on or after January 1, 2020, with early application permitted.

- Amendments to References to the Conceptual Framework in K-IFRS Standards

Together with the revised Conceptual Framework, which became effective upon publication on December 21, 2018, the IASB has also issued Amendments to References to the Conceptual Framework in IFRS Standards. The document contains amendments to K-IFRSs 1102, 1103, 1106, 1114, 1001, 1008, 1034, 1037, 1038, 2112, 2119, 2120, 2122 and 2032

Not all amendments, however, update those pronouncements with regard to references to and quotes from the framework so that they refer to the revised Conceptual Framework. Some pronouncements are only updated to indicate which version of the framework they are referencing to (the Framework (2007), the IASB Framework of 2010 or the new revised Framework of 2018) or to indicate that definitions in the standard have not been updated with the new definitions developed in the revised Conceptual Framework.

-23- The amendments, where they actually are updates, are effective for annual periods beginning on or after January 1, 2020, with early application permitted.

The Group does not anticipate that the application of the enactment and amendments will have any significant impact on the Group’s consolidated financial statements.

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.

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.

(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 statements 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 headquarters, overseas branches and overseas offices operate (the “functional currency”). The consolidated financial statements are presented in Korean won.

-24- (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 (“FVPL”), 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 OCI.

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 consolidated statements 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; fair value through other comprehensive income (“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 as at FVPL:

ࡐG It is held within a business model whose objective is to hold assets to collect contractual cash flows. ࡐG Its contractual terms give rise on specified dates to cash flows that are SPPI 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:

ࡐG It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and ࡐG The contractual terms give rise on specified dates to cash flows that are SPPI on the principal amount outstanding.

On initial recognition of an equity investment 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.

-25- (3) Subsequent measurement and gains and losses

Classification Subsequent measurement These assets are subsequently measured at fair value. Net gains and losses, including any

Financial assets at FVPL 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

exchange gains and losses and impairment are recognized in profit or loss. Any gain or Financial assets at amortized cost loss on derecognition is recognized in profit or loss. 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 profit or loss. Other net gains and losses are recognized in OCI. On Debt investments at FVOCI 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 represent a recovery of investment costs. Other net gains and Equity investments at FVOCI 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 FVOCI, 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 credit losses classified by three stages as listed in the following table depending on the degree of increase in credit risk since initial recognition.

Remark (*1) The loss allowance 12-month expected credit losses: expected credit losses that result from No significant increase in credit risk Stage 1 those default events on the financial instrument that are possible within 12 after initial recognition (*2) months after the reporting date. Significant increase in credit risk Stage 2 Lifetime expected credit losses: expected credit losses that result from all after initial recognition possible default events over the life of the financial instrument. Stage 3 Credit impaired

(*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-IFRS 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 continues to recognize the transferred asset and simultaneously recognizes the cash flows from the asset expiration as a financial liability.

(6) Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount is reported in the consolidated 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 liabilities 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.

2.6 Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the specific identification method.

-26- 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 and 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 Leases

The Group has chosen the cumulative catch-up approach at the date of initial application of K-IFRS 1116. Therefore, the Group does not restate the comparative information. The detailed accounting policies that are applied under K-IFRS 1017 and K-IFRS 1116 are as follows:

(1) Accounting policy applied on or after January 1, 2019

£ The Group as lessee

The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognizes a right-of- use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short- term leases (defined as leases with a lease term of 12 months or less) and leases of low-value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Group recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.

Lease payments included in the measurement of the lease liability comprise: ࡐG fixed lease payments (including in-substance fixed payments), less any lease incentives receivable; ࡐG variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date; ࡐG the amount expected to be payable by the lessee under residual value guarantees; ࡐG the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and ࡐG payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease. The lease liability is presented as a separate line in the consolidated statements of financial position.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

-27- The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever: ࡐG The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. ࡐG The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used). ࡐG A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification. The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognized and measured under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.

Right-of-use assets are depreciated over the shorter period of lease term or useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

The right-of-use assets are presented as a separate line in the consolidated statements of financial position.

Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right- of-use asset. The related payments are recognized as an expense in the period in which the event or condition that triggers those payments occurs and are included in profit or loss.

As a practical expedient, K-IFRS 1116 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Group has not used this practical expedient. For contracts that contain a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

¤ The Group as lessor

The Group enters into lease agreements as a lessor with respect to some of its investment properties. The Group also rents equipment to retailers necessary for the presentation and customer fitting and testing of footwear and equipment manufactured by the Group.

Leases for which the Group is a lessor are classified as finance or operating leases. Whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases.

When the Group is an intermediate lessor, it accounts for the head lease and the sublease as two separate contracts. The sublease is classified as a finance or operating lease by reference to the right-of-use asset arising from the head lease.

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.

Amounts due from lessees under finance leases are recognized as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

When a contract includes both lease and non-lease components, the Group applies IFRS 15 to allocate the consideration under the contract to each component.

-28-

(2) Accounting policy applied before January 1, 2019

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

£ The Group as lessee

Assets held under finance leases are initially recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statements of financial position as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Group’s general policy on borrowing costs. Contingent rentals are recognized as expenses in the periods in which they are incurred.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

¤ The Group as lessor

2.10 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 consolidated statements of financial position by deducting the grant in arriving at the carrying amount of the asset, and government grants related to income are deferred and later deducted from the related expense.

2.11 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 their 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

-29- 2.12 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.

2.13 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.

2.14 Financial Liabilities

(1) Classification and measurement

The Group classifies non-derivative financial liabilities, except for financial liabilities at FVPL, 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.

(2) Derecognition

Financial liabilities are removed from the consolidated statements of financial position when they are extinguished; for example, when the obligation specified in the contract is discharged or canceled or expired or when the terms of an existing financial liability are substantially modified.

2.15 Financial Guarantee Contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument.

Financial guarantee contract liabilities are measured initially at their fair values and, if not designated as at FVPL and do not arise from a transfer of an asset, are measured subsequently at the higher of:

ࡐG the amount of the loss allowance determined in accordance with K-IFRS 1109 (see financial assets above) or ࡐG the amount recognized initially less, where appropriate, cumulative amortization recognized in accordance with the revenue recognition policies set out above.

2.16 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.

2.17 Current and Deferred Taxes

The tax expense for the reporting period consists of current and deferred taxes. Current and deferred taxes are recognized in profit or loss, except to the extent that it relates to items recognized in OCI or directly in equity. In this case, the tax is also recognized in OCI or directly in equity.

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.

-30- 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 for 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 it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Deferred tax assets 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.

2.18 Employee Benefits

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

Generally, postemployment benefits are payable after the completion of employment, and the benefit amount depends on the employee’s age, period of service and salary level. The liability recognized in the consolidated statements 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 OCI.

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 contributions have been paid. The contributions are recognized as employee benefit expense when they are due.

2.19 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; ཛ The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, ཛྷ The 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 enhances 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.

-31- Certain construction service contracts for apartments are recognized as 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 could be expected to recover cost, the input method 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 obligation 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 estimates an amount of variable consideration using the expected value or the most likely amount and includes in the transaction price some or all of the 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 is associated with recognizing revenue.

(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 as an 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.

2.20 Approval of Issuance of the Consolidated Financial Statements

The consolidated financial statements of 2019 were approved for issue by the board of directors on February 20, 2020, and are subject to change with the approval of shareholders at their annual general meeting.

-32- 3. SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS:

The preparation of consolidated 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. Actual results may differ from these accounting estimates.

(1) 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 that the customer will approve the increase in revenue due to the changes in contract work, when it is probable that the Group will be able to satisfy the performance requirements and when the amount can be reliably estimated.

(2) 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.

(3) 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.

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, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 Financial Financial Financial assets at assets at assets at Fair Financial assets amortized cost FVPL FVOCI Total value

Cash and cash equivalents W 1,188,171,056 - - 1,188,171,056 - Short-term financial instrument assets 350,000,000 860,000,000 - 1,210,000,000 860,000,000 Long-term financial instrument assets 1,423,905 - - 1,423,905 - Trade receivables 866,435,588 - - 866,435,588 - Other receivables 392,336,352 - - 392,336,352 - Long-term other receivables 438,827,784 - - 438,827,784 - Financial assets at FVPL - 26,335,903 - 26,335,903 26,335,903 Financial assets at FVOCI - - 28,150,357 28,150,357 28,150,357 W 3,237,194,685 886,335,903 28,150,357 4,151,680,945 914,486,260

-33- (In thousands of Korean won) December 31, 2018 Financial Financial Financial assets at assets at assets at Fair Financial assets amortized 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

(2) Fair values of financial liabilities as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018 Financial liabilities Financial liabilities Financial liabilities at amortized cost Fair value at amortized cost Fair value

Traded payables W 844,363,860 - 933,122,780 - Other payables (*1)(*2) 117,717,962 - 69,957,417 - Short-term borrowings - - 5,798,663 - Current portion of other financial guarantee liabilities 27,501,671 - 719,875 - Debentures (*3) 199,846,560 - 299,642,400 - Lease liabilities 39,267,498 - - - Long-term trade payables 515,901 - - - Long-term other payables 79,917,124 - 102,266,100 - Financial guarantee liabilities - - 28,457,552 - W 1,309,130,576 - 1,439,964,787 -

(*1) The difference in the amount presented on the consolidated statements of financial position and the amount presented above represents non-trade advances and accrued employee benefit expenses. (*2) The carrying amount of other payables in the prior consolidated statement of financial position that is not deemed to be financial liabilities was excluded. (*3) The amount includes the current portion of long-term liabilities in the consolidated statements 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:

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

-34- (4) Fair value hierarchy classifications of the financial instruments that are measured at fair value as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) Financial assets at FVPL Financial assets at FVPL Financial assets at FVOCI Level 2 Level 3

December 31, 2019 W 860,000,000 26,335,903 28,150,357 December 31, 2018 1,575,001,000 30,903,442 34,740,852

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 an instrument are observable, the instrument 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.

(5) Details of changes in the financial instruments that are included in Level 3 for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018 Financial assets Financial assets Financial assets Financial assets at FVPL at FVOCI at FVPL at FVOCI

Prior-year ending balance W 30,903,442 34,740,852 8,666,637 - Adjustment on initial application of new accounting standards (No. 1109) - - 12,432,862 26,757,160 Current-year beginning balance 30,903,442 34,740,852 21,099,499 26,757,160 Comprehensive income and others - 1,258,549 - G 2,021,423 Profit for the year and others (9,314,509) - 5,133,503 - Acquisition and disposal 4,746,970 (7,849,044) 4,670,440 G 5,962,269 Current-year ending balance W 26,335,903 28,150,357 30,903,442 G 34,740,852

(6) Valuation techniques and inputs

£ 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, 2019, are as follows:

(In thousands of Korean won) December 31, 2019 Fair value Level Valuation techniques Financial assets at FVPL Construction guarantee cooperative equity Net asset valuation and investments and others W 9,491,622 others Cash flow discount Debt securities 9,982,411 3 method Usage of past Debt securities 2,848,810 transactions Collective investment securities 4,013,060 Market approach 26,335,903 Financial assets at FVOCI Net asset valuation and Non-marketable equity securities 2,300,307 others 3 Cash flow discount Non-marketable equity securities 25,850,050 method 28,150,357 W 54,486,260

-35- ¤ 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 not Evaluation observable input Fair value measurements and significant but not Division technique variable observable interrelationship between input variables Equity Cash flow discount Expected revenue The estimated fair value increases (decreases) as follows: securities, method, etc. growth rate, risk- ූ Expected revenue growth is going to be lower (higher) etc. adjusted discount rate, etc. ූ 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, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018 Financial assets at amortized cost Interest income W 50,246,779 61,206,124 Impairment loss (11,453,246) (4,965,037) Other impairment loss (2,011,158) (9,275,331) Reversal of other impairment loss 913,506 12,592,366 Financial assets at FVPL Dividend income 136,917 82,327 Gain on valuation of financial assets at FVPL 484,231 5,969,088 Loss on disposal of financial assets at FVPL (7,828) (27,396) Loss on valuation of financial assets at FVPL (9,798,741) (835,586) Financial assets at FVOCI Dividend income 90,031 90,031 Financial liabilities at amortized cost Interest expense (8,456,810) (8,120,621) Interest costs - lease liabilities (518,260) -

Net exchange differences that relate to loans and receivables, and financial liabilities measured at amortized cost amount to W4,950 million (2018: W12,903 million).

5. CASH AND CASH EQUIVALENTS:

Cash and cash equivalents as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018

Cash on hand W 354,145 455,240 Local currency bank deposits 447,459,103 85,068,451 Foreign currency bank deposits 740,357,808 438,468,376 W 1,188,171,056 523,992,067

-36- 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, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018 Trade receivables Trade receivables W 927,396,566 908,175,732 Less : provisions for impairment (60,960,978) (29,477,410) W 866,435,588 878,698,322 Due from customers for contract work Due from customers for contract work W 400,628,437 581,861,383 Less : provisions for impairment (19,668,029) (38,820,879) W 380,960,408 543,040,504 Other receivables Non-trade receivables W 206,402,971 178,149,264 Less : provisions for impairment (12,030,618) (11,523,029) Accrued income 17,225,795 38,590,328 Less : provisions for impairment (8,625,723) (8,931,053) Short-term loans 26,319,749 33,892,696 Less : provisions for impairment (284,337) (479,719) Current portion of long-term loans - 2,697,656 Less : provisions for impairment - (4,822) Current portion of guarantee deposits 174,167,995 1,620,513 Less : present value discount account (4,009,285) - Less : provisions for impairment (6,830,195) (30,738) W 392,336,352 233,981,096 Long-term other receivables Long-term non-trade receivables W 7,258 20,018 Less : provisions for impairment (74) (232) Long-term loans 127,105,057 99,866,920 Less : present-value discount (6,172,880) (1,198,183) Less : provisions for impairment (87,012,169) (86,785,550) Guarantee deposits 422,855,700 556,826,948 Less : present-value discount (14,634,452) (6,394,092) Less : provisions for impairment (3,320,656) (10,709,238) W 438,827,784 551,626,591

(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.

-37- Information on expected credit losses and credit risk exposures for trade receivables as of December 31, 2019, is as follows:

Provisions for

(In thousands of Korean won) Weighted-average default rate Book value impairment

6,960,038 ٻ Receivables unexpired 1.15% W 607,454,328 6,850,116 ٻ 139,360,565 ٻ Up to 3 months 4.92% 3,801,319 ٻ 39,837,972 ٻ to 6 months 9.54% 3 43,349,505 ٻ 140,743,701 ٻ More than 6 months 30.80% 60,960,978 ٻ W 927,396,566 6.57%

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.

(3) Movements on the allowance for doubtful debts of trade and other receivables for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 Reversal of Doubtful doubtful debts - debts - Foreign Beginning amortization amortization exchange Ending balance expense expense Write-off Replacement effect balance

Trade receivables W 29,477,410 45,121,353 (13,557,987) - - (79,798) 60,960,978 Dues from customer for contract work 38,820,879 561,065 (19,713,915) - - - 19,668,029 Other receivables 20,969,361 3,055,577 (550,634) - 4,295,186 1,382 27,770,872 Long-term other receivables 97,495,020 236,445 (3,093,711) (9,669) (4,295,186) - 90,332,899 W 186,762,670 48,974,440 (36,916,247) (9,669) - (78,416) 198,732,778

(In thousands of Korean 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

-38- 7. INVENTORIES:

(1) Details of inventories as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018

Land W 266,195,247 333,491,220 Less : valuation allowance (840,369) (840,369) Raw material 8,184,886 14,929,529 Completed housing 1,740,503 1,766,785 Less : valuation allowance (1,117,561) (549,230) Incomplete housing developments 4,400,396 3,467,995 W 278,563,102 352,265,930

(2) Changes in valuation allowance for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 Beginning balance Recognition Disposal Ending balance

(840,369) ٻ - ٻ - ٻ (Land W (840,369 (1,117,561) ٻ - ٻ (568,331) ٻ (Completed housing (549,230 (1,957,930) ٻ - ٻ (568,331) ٻ (W (1,389,599

(In thousands of Korean 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)

8. OTHER CURRENT AND NON-CURRENT ASSETS:

Details of other current and non-current assets as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) Details December 31, 2019 December 31, 2018

Advance payments W 466,640,992 336,867,041 Less: provisions for impairment (12,964,461) (12,471,757) Other current assets Prepaid expenses 113,120,363 158,399,687 Prepaid value-added taxes 21,084,335 27,691,126 587,881,229 510,486,097 Other non-current assets Long-term prepaid expenses 16,709,631 -

-39- 9. SHORT-TERM AND LONG-TERM FINANCIAL INSTRUMENTS:

(1) Details of financial instruments as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) Details December 31, 2019 December 31, 2018

Short-term financial instruments Time deposits and others W 1,210,000,000 1,730,472,170 Long-term financial instruments Time deposits 1,410,905 1,338,405 Special deposits 13,000 13,000

(2) Details of financial instruments as collateral as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018 Details

W - 85,000 Collateral for license deposit - 737,000 Collateral for leasehold deposits Short-term financial Collateral for completion of instruments - 1,100,000 construction Collateral to HOUSING & URBAN 1,338,405 1,338,405 GUARANTEE CORPORATION Long-term financial 72,500 - Collateral for license deposit instruments 13,000 13,000 Deposit for opening current account W 1,423,905 3,273,405

10. FINANCIAL ASSETS AT FVPL:

(1) Details of financial assets at FVPL as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018 Acquisition Acquisition cost Book value cost Book value

Investment in Union & Association (*) W 12,806,813 16,504,682 9,806,813 13,168,082 Investment in BTO business(*) 19,117,300 9,831,221 17,370,330 17,735,360 Investment in BTL business(*) 1,062,795 - 1,062,795 - W 32,986,908 26,335,903 28,239,938 30,903,442

(*) W19,281 million of financial assets at FVPL are pledged for guarantee such as social overhead capital (“SOC”) (see Note 27).

(2) Details of financial assets at FVOCI as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018 Acquisition cost Book value Acquisition cost Book value

Unlisted securities (*) W 27,778,438 28,150,357 32,850,311 34,740,852

(*) Unlisted securities of W108 million are pledged for guarantee (see Note 27).

-40- (3) Changes in the fair value of financial assets at FVOCI for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Beginning balance W 3,642,528 - Adjustment on initial application of new accounting standard (No. 1109) - 726,122 Increase (decrease) (1,814,908) 2,021,423 Tax effect (1,545,107) 894,983 Ending balance W 282,513 3,642,528

11. INVESTMENTS IN ASSOCIATES:

(1) Details of investments in associates as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018 Percentage of Percentage of Name of Company Country ownership (%) Book value ownership (%) Book value

HYUNDAI ENGINEERING (THAILAND) CO., LTD. Thailand 49.00 W - 49.00 W - HAEVICH COUNTRY CLUB., LTD. Korea 40.00 6,285,389 40.00 6,501,912 DAMYANG GREEN DEVELOPMENT CO., LTD.(*1)(*2) Korea 24.90 - 24.90 - INCHEON GANGHWA INDUSTRIAL COMPLEX CO., LTD.(*5) Korea - - 20.00 2,400,000 KM ENERGY CO., LTD. Korea 29.90 - 29.90 - SEJONG MIRAE INDUSTRIAL COMPLEX CO., LTD.(*1)(*2) Korea 20.00 389,280 20.00 389,280 THE HS-CITY EXPRESSWAY(*1) Korea 27.66 3,984,104 27.66 5,234,950 HYUNDAI ENGINEERING (CAMBODIA) CO., LTD.(*2)(*3) Cambodia - - - - LHT INTERNATIONAL ENGINEERING JOINT STOCK COMPANY(*4) Vietnam 30.00 84,645 30.00 478,680 VISION RIDE CO., LTD. Korea 32.92 - 32.92 - CHEONGJU OCHANG TECHNOPOLIS CO., LTD.(*5) Korea - - 29.00 290,000 CHEONGJU OKSAN2 INDUSTRIAL COMPLEX DEVELOPMENT CO., LTD. Korea 20.00 2,000 20.00 2,000 DONGBUK LRT CO., LTD. (*6) Korea 32.00 13,057,400 32.00 2,464,000 Solomon TINA HYDROPOWER LIMITED Islands 20.00 384,779 20.00 384,779 EUMSEONG YONGSAN GENERAL INDUSTRIAL COMPLEX CORP.(*7) Korea 20.00 100,000 - - SMART VALLEY INDUSTRIAL COMPLEX CO., LTD.(*1) Korea 20.00 200,000 20.00 200,000 SAEMANGEUM DEVELOPMENT CORP. (*7) Korea 29.00 540,000 - - W 25,027,597 W 18,345,601

(*1) As of December 31, 2019, the above investments are pledged as collateral in relation to payment guarantee of SOC and others (see Note 27). (*2) The Group recognized impairment loss to the investments in associates for the year ended December 31, 2018. (*3) As of December 31, 2019, the liquidation of HYUNDAI ENGINEERING (CAMBODIA) CO., LTD. is in progress. (*4) The Group recovered 70% of its capital in LHT INTERNATIONAL ENGINEERING JOINT STOCK COMPANY for the year ended December 31, 2019.

-41- (*5) The Group disposed of the investments in associates for the year ended December 31, 2019. (*6) The Group invested additional capital to associates for the year ended December 31, 2019. (*7) The Group acquired investments in associates for the year ended December 31, 2019.

(2) Changes in investments in associates for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Beginning balance W 18,345,601 17,579,808 Equity method profit (loss) (1,467,368) (2,184,152) Acquisition 11,233,399 3,104,712 Disposal (*) (3,078,174) (81,311) Impairment loss - (55,668) Dividend (5,861) (17,788) Ending balance W 25,027,597 18,345,601

(*) It includes the amount of decrease in capital of investments in associates.

(3) Financial information in investments in associates for the years ended December 31, 2019 and 2018, is as follows:

(In thousands of Korean won) 2019 Assets Liabilities Sales Profit HYUNDAI ENGINEERING (THAILAND) CO., (256,468) ٻ - ٻ 29,837,545 ٻ LTD. W 1,244,219 (4,575,378) ٻ 10,386,570 ٻ 157,735,055 ٻ THE HS-CITY EXPRESSWAY 172,140,200 (666,821) ٻ - ٻ 1,433,744 ٻ DONGBUK LRT CO., LTD. 41,356,836 SEJONG MIRAE INDUSTRIAL COMPLEX (6,734,589) ٻ (81,558) ٻ 95,352,282 ٻ CO., LTD 64,829,235 DAMYANG GREEN DEVELOPMENT CO., (1,288,059) ٻ 17,358,475 ٻ 31,781,481 ٻ LTD. 27,585,799 306,683 ٻ 13,556,609 ٻ 273,811,210 ٻ HAEVICH COUNTRY CLUB., LTD. 289,524,683

(In thousands of Korean won) 2018 Assets Liabilities Sales 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)

As of December 31, 2019, accumulated equity movements that have not been recognized as equity method accounting for HYUNDAI ENGINEERING (THAILAND) CO., LTD., an associate, are no longer applied, amounting to W14,011 million.

-42- 12. PROPERTY, PLANT AND EQUIPMENT:

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

(In thousands of Korean won) 2019 Tools and Construction Land Building Structures Machinery Vehicles equipment in progress Others Total I. Acquisition cost Beginning 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 Acquisition 505,622 133,926 608,817 3,136,779 2,970,441 2,877,526 4,151,554 - 14,384,665 Disposal - (59,276) - (5,911,624) (2,673,172) (4,776,849) - - (13,420,921) Reclassification - - - - - 30,400 (598,695) - (568,295) Others 3,751 22,164 9,137 1,525,964 716,715 1,471,661 (1,205,742) 779,121 3,322,771 Ending balance 27,048,659 2,658,748 1,043,102 9,341,102 16,237,285 32,208,624 3,312,585 25,932,253 117,782,358 II. Accumulated depreciation Beginning balance - (1,291,803) (241,489) (6,539,873) (8,488,195) (26,239,815) - (25,115,500) (67,916,675) Depreciation - (52,776) (22,423) (1,440,295) (2,138,529) (2,620,449) - (7,940) (6,282,412) Disposal - 21,608 - 4,808,491 2,294,930 4,645,550 - - 11,770,579 Reclassification - - - - - - - - - Others - 4,903 (228) (1,228,578) (801,950) (1,411,716) - (784,076) (4,221,645) Ending balance - (1,318,068) (264,140) (4,400,255) (9,133,744) (25,626,430) - (25,907,516) (66,650,153) III. Book value Beginning balance 26,539,286 1,270,131 183,659 4,050,110 6,735,106 6,366,071 965,468 37,632 46,147,463

Ending balance W 27,048,659 1,340,680 778,962 4,940,847 7,103,541 6,582,194 3,312,585 24,737 51,132,205

(2) Changes in property, plant and equipment for the year ended December 31, 2018, are as follows:

(In thousands of Korean 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 - 4,287 - 509,905 373,922 306,770 1,056 473,196 1,669,136 Ending balance 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 - (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 - (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 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

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

-43- (3) Distributions of depreciation cost for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Cost of sales W 5,103,491 6,111,269 Selling and administrative expenses 1,178,921 1,454,475 W 6,282,412 7,565,744

13. INVESTMENT PROPERTIES:

(1) Details of investment properties as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018 Acquisition Accumulated Accumulated cost depreciation impairment loss Book value Book value

Land W 47,714,160 - (9,662,763) 38,051,397 26,967,528 Buildings 21,969,208 (1,162,309) - 20,806,899 7,607,968 W 69,683,368 (1,162,309) (9,662,763) 58,858,296 34,575,496

(2) Changes in investment properties for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 Beginning Re- Ending balance Acquisition Disposal classification(*) Depreciation Impairment balance

Land W 26,967,528 - (1,884,138) 13,178,193 - (210,186) 38,051,397 Buildings 7,607,968 - (965,442) 14,609,307 (444,934) - 20,806,899 W 34,575,496 - (2,849,580) 27,787,500 (444,934) (210,186) 58,858,296

(*) Trade receivables amounting to W27,788 million, respectively, are reclassified as investment properties.

(In thousands of Korean won) 2018 Beginning Re- Ending balance Acquisition Disposal classification(*) 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

(*) Property, Plant and Equipment amounting to W1,608 million , respectively, are reclassified as investment properties.

(3) Profit or loss recognized in relation to investment properties for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Rental revenue and others W 231,953 383,810 Direct operating costs (Related to investment properties with rental income) 903,485 295,194

-44- (4) Distributions of depreciation cost for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Cost of sales W 51,783 34,378 Selling and administrative expenses 393,151 61,350 W 444,934 95,728

(5) The fair value of investment properties as of December 31, 2019 and 2018, is not significantly different from the carrying amount in the consolidated statements of financial position.

14. LEASES:

(1) As of the end of the current term, the details of right-of-use assets by class of underlying asset are as follows:

Accumulated (In thousands of Korean won) Cost(*) depreciation(*) Book value

Land W 4,068,538 (711,950) 3,356,588 Buildings 39,193,207 (10,580,448) 28,612,759 Structures 8,525 (1,277) 7,248 Machinery 8,051,668 (4,637,522) 3,414,146 Vehicles 6,274,387 (2,762,559) 3,511,828 Tools and equipment 861,726 (296,543) 565,183 Temporary materials 16,069 (10,606) 5,463 W 58,474,120 (19,000,905) 39,473,215

(*) During the current year, the acquisition amount due to the termination of the contract is W 6,063 thousand and the accumulated depreciation is W 6,063 thousand.

(2) The amount recognized as profit or loss during the current term is as follows:

(In thousands of Korean won) 2019

Depreciation of right-of-use assets W 19,006,968 Interest costs - lease liabilities 518,260 Short-term lease payments 17,624,748 Expenses related to low-value asset lease 608,254

(3) As of the end of the current term, the maturity analysis of lease liabilities is as follows:

More than 10 (In thousands of Korean won) Less than 1 year 1 to 5 years 5 to 10 years years Total

Lease liabilities W 33,059,425 5,601,963 236,475 369,635 39,267,498

(4) The total cash outflow for leases during the current year is W37,963,880 thousand.

-45- 15. INTANGIBLE ASSETS:

(1) Changes in the intangible assets for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 Contract Membership backlog rights Goodwill Others Total I. Acquisition cost Beginning balance W 213,330,000 22,298,939 588,657,920 63,987,807 888,274,666 Acquisition - - - 13,322,801 13,322,801 Disposal - - - (50,887) (50,887) Reclassification - - - 568,295 568,295 Others - - - 237,063 237,063 Ending balance 213,330,000 22,298,939 588,657,920 78,065,079 902,351,938 II. Accumulated depreciation Beginning balance (205,449,400) - - (45,203,168) (250,652,568) Amortization (7,880,600) - - (7,178,975) (15,059,575) Disposal - - - 17,395 17,395 Reclassification - - - - - Others - - - (379,133) (379,133) Ending balance (213,330,000) - - (52,743,881) (266,073,881) III. Book value Beginning balance 7,880,600 22,298,939 588,657,920 18,784,639 637,622,098 Ending balance W - 22,298,939 588,657,920 25,321,198 636,278,057

(In thousands of Korean 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

(2) Distributions of amortization cost for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Cost of sales W 2,699,441 2,837,476 Selling and administrative expenses 12,360,134 40,743,136 W 15,059,575 43,580,612

-46-

(3) Goodwill is distributed to the Company’s cash-generating unit identified by operating division. The recoverable amount of the Group’s cash-generating unit was measured by the value of use calculated by applying the estimated cash flows based on the business plan for the next five years approved by the management. Cash flows expected to occur over a period of more than five years are estimated within the scope of the cash-generating unit not exceeding the long-term average growth rate of each industry. As a result of the impairment test on goodwill, there was no amount recognized for impairment loss for the years ended December 31, 2019 and 2018.

16. 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, 2019 and 2018, are as follows:

(In thousands of Korean won) Details December 31, 2019 December 31, 2018

Other payables Non-trade payables W 115,540,202 67,779,832 Accrued expenses 37,629,985 28,201,172 Withholdings 51,688,083 56,660,697 Guarantee deposit 1,000 1,000 Dividend payables 2,403 1,997 204,861,673 152,644,698 Other current liabilities Unearned revenue 916,701 1,060,516 Value-added tax withheld 12,429,964 8,686,373 13,346,665 9,746,889 Long-term other payables Guarantee deposits 81,932,444 103,053,645 Less: present-value discount (2,015,320) (787,545) 79,917,124 102,266,100 Other current liabilities Long-term unearned revenue 2,095,270 -

17. SHORT-TERM BORROWINGS AND DEBENTURES:

(1) Short-term Borrowings as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, December 31, Types of borrowing Borrower Interest rate (%) 2019 2018 5,798,663 Foreign currency general loan KEB HANA BANK 3.20 W - (USD 5,066,000)

-47- (2) Debentures as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) Issuance Maturity Interest December December Financial institution Series date date rate (%) Payment 31, 2019 31, 2018 September September Lump sum 6-2(*) 25, 2014 25, 2019 2.92 payment W - 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 200,000,000 300,000,000 Less: discount on debentures payable (153,440) (357,600) Less: current portion of long-term

liabilities (99,975,977) (99,934,016) W 99,870,583 199,708,384

(*) The above debentures have an agreement that may result in the loss of the profit in fixed term due to the event of a regulation violation (see Note 27).

18. NET DEFINED BENEFIT LIABILITIES:

(1) Details of net defined benefit liabilities (assets) recognized in the consolidated statements of financial position as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018

Present value of defined benefit obligation W 264,230,129 236,918,248 Fair value of plan assets (279,754,214) (225,421,333) (15,524,085) 11,496,915 Net defined benefit liabilities 181,784 11,496,915 Net defined benefit assets W (15,705,869) -

(2) Movements in the defined benefit obligations for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Beginning balance W 236,918,248 203,244,731 Current service cost 32,922,559 30,275,102 Interest expense 8,094,206 8,023,015 Remeasurements 13,093,513 14,811,773 Benefit payments (27,484,955) (21,280,718) Transfer from related companies 687,568 1,844,421 Others (1,010) (76) Ending balance W 264,230,129 236,918,248

-48- (3) Movements in the fair value of plan assets for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Beginning balance W 225,421,333 202,513,291 Interest income 7,768,452 8,044,248 Remeasurements (3,123,018) (4,730,304) Employer contributions 70,000,000 35,000,000 Benefit payments (21,000,121) (17,250,323) Transfer from related companies 687,568 1,844,421 Ending balance W 279,754,214 225,421,333

(4) Plan assets as of December 31, 2019 and 2018, consist of the following:

(In thousands of Korean won) December 31, 2019 December 31, 2018

Cash and cash equivalents W 14,542,441 70,535 Insurance and others 265,211,773 225,350,798 W 279,754,214 225,421,333

(5) The significant actuarial assumptions as of December 31, 2019 and 2018, are as follows:

December 31, 2019 December 31, 2018

Discount rate 3.26% 3.61% Salary growth rate 3.18% 3.19%

(6) The sensitivity of the defined benefit obligation to changes in the principal assumptions is as follows:

Impact on defined benefit obligation Change in assumption Increase in assumption Decrease in assumption

Discount rate 1.00% 8.00% decrease 9.20% increase Salary growth rate 1.00% 9.40% increase 8.20% decrease

(7) The effects of the defined benefit obligation on future cash flow are as follows:

The Group reviews the level of the fund’s reserves on an annual basis and has a policy of eliminating deficit from the fund.

Expected contributions to postemployment benefit plans for the year ended December 31, 2019, are W39,817 million. The expected maturity analysis of undiscounted pension benefits payment as of December 31, 2019, is as follows:

(In thousands of Korean won) December 31, 2019 Between 2 Less than Between 1 year years and More than 5 1 year and 2 years 5 years years Total

Pension benefits W 23,335,988 28,754,424 88,405,243 752,350,245 892,845,900

The weighted-average duration of the defined benefit obligations is 8.83 years.

-49- (8) Movements in provision for long-term employee benefits for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Beginning balance W 8,995,536 7,737,044 Interest expense and others 3,847,633 1,968,957 Benefit payments (929,078) (710,465) Ending balance W 11,914,091 8,995,536

19. SHARE CAPITAL, OTHER PAID-IN-CAPITAL AND OTHER COMPONENT OF EQUITY:

(1) Details of share capital as of December 31, 2019 and 2018, are as follows:

Par value per Capital stock Number of authorized Number of issued share (in thousands of shares (in shares) shares (in shares) (in Korean won) Korean 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, 2019 and 2018.

(3) Details of other paid-in capital as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018

Share premium W 1,417,314,062 1,417,314,062 Other reserves (17,218,881) (17,218,881) Treasury shares (140,730,333) (140,730,333) W 1,259,364,849 1,259,364,849

(4) Details of other components of equity as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018

Gain on valuation of financial assets at FVOCI W 282,513 3,642,528 Gain on foreign currency translation (22,024,010) 56,938,084 W (21,741,497) 60,580,612

-50- 20. RETAINED EARNINGS:

Details of retained earnings as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018

Legal reserve (*) W 19,149,664 19,149,664 Discretionary reserve 218,510 218,510 Retained earnings before appropriation 2,213,770,748 2,011,794,473 W 2,233,138,922 2,031,162,647

(*) 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 year ended December 31, 2019, of W15,000 per share, amounting to a total dividend of W108,705 million, is to be proposed at the annual general meeting on March 12, 2020. The consolidated financial statements do not reflect this dividend payable.

-51- 21. OPERATING SEGMENT INFORMATION:

(1) Details of the Group’s reportable segments and its major customers as of December 31, 2019, are as follows:

Goods or services Major customers

Oil refining, petrochemistry, gas restoring facility, Kuwait Integrated Petroleum Industries, transmission and transformation of electric power, Edra Energy Sdn. Bhd., SPE Spa, Plant & Power thermoelectric power plant, road, harbor, Dreamtech Investment Co., Ltd. and housing complex development, others water disposal-related facility and others Factory building, general building, WELLMADE C&D, Building & House state-of-the-art building, apartment house and others SS Development Co., Ltd. and others Others Facilities maintenance and others HYUNDAI MOTOR CO. and others

(2) Profit or loss by each segment for the years ended December 31, 2019 and 2018, is as follows:

(In millions of Korean won) 2019 Plant & Power Building & House Others Total

Revenue from external customer W 3,374,522 2,607,084 819,454 6,801,060 Total segment revenue 3,374,522 2,607,084 821,101 6,802,707 Inter-segment revenue - - 1,647 1,647 Gross profit 390,791 302,945 55,024 748,760 Property and equipment (*) 8,154 561 42,417 51,132 Depreciation 2,916 219 3,147 6,282

(*) The property and equipment amount is the balance at the end of the current year.

(In millions of Korean 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 Intersegment 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

(*) The property and equipment amount is the balance at the end of the current year.

The accounting policy for segments is identical to that of the Group.

(3) There’s no Group external customer attributing to more than 10% of sales for the years ended December 31, 2019 and 2018.

-52- 22. CONSTRUCTION CONTRACTS:

(1) Details of revenue from continuing operations for the years ended December 31, 2019 and 2018, are as follows:

(In millions of Korean won) 2019 2018

Construction (*) W 5,771,534 5,260,446 Service (*) 46,391 63,416 Real estate 163,682 204,678 Asset management 819,311 757,293 Others 142 391 W 6,801,060 6,286,224

(*) 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) Cumulative construction costs and cumulative income of the Group’s contracts on ongoing or completed projects as of December 31, 2019 and 2018, are as follows:

(In millions of Korean won) December 31, 2019 Contract asset

(*1) Contract liability (*1) Accumulated Due from Due to Accumulated Accumulated contract Progress customers for Advance customers for Retentions contract cost profit revenue billings contract work received contract work (*2)

Plant & Power W 15,750,237 2,084,788 17,835,025 18,022,252 243,337 272,383 561,897 451,513 Building & House 4,942,885 610,464 5,553,349 5,583,813 137,623 189,561 184,080 13,167 W 20,693,122 2,695,252 23,388,374 23,606,065 380,960 461,944 745,977 464,680

(*1) In addition to the above contract assets and liabilities, contract execution costs of W11,539 million are included in the prepaid expenses in the consolidated statements of financial position. (*2) In the consolidated statements of financial position, the amount of retention is recorded as other receivables and long- term other receivables.

(In millions of Korean won) December 31, 2018 Contract asset

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 W 44,571 million are included in the prepaid expenses in the consolidated statements of financial position. (*2) In the consolidated statements of financial position, the amount of retention is recorded as long-term other receivables.

-53- (3) Contractual information of contract revenue that exceeds 5% of previous revenues for the years ended December 31, 2019 and 2018, is as follows:

(In millions of Korean won) 2019 Trade receivables Due from customers for (receivables from contract work construction contracts) Contractual Accumulated completion Stage of Gross impairment Gross Provision for Contract date date (*) completion amount loss amount impairment

Indonesia RDMP Balikpapan 2018-12-10 2023-07-26 5% W - - 35,978 - Turkmenistan Ethane Cracker and PE PP Plant 2014-01-29 2018-09-30 100% 11,470 - - - Kuwait Al-Zour LNG Import Project 2016-03-30 2021-02-12 77% - - 60 - Uzbekistan GTL Project 2014-01-07 2020-04-30 76% 49,233 - - - Poland Polimery Police PDH/PP Project 2019-05-11 2022-11-30 2% 8,197 - - - RPLC DEEP CONVERSION PROJECT [EPC] 2012-06-27 2020-09-30 94% - - 17,330 - Iraq Karbala Project 2014-04-15 2022-02-16 85% 35,967 - 13,229 - Hyundai Chemical HPC Project 2019-08-30 2021-09-30 7% 1,004 - 2,132 - Vietnam Long Son Petrochemicals- Utility Plant 2018-07-13 2023-02-14 14% - - - - Melaka Refinery Diesel Euro 5 Project 2018-02-02 2020-09-28 74% - - 9,838 - Melaka 1,800MW-2,400MW CCGT

Power Plant Project 2017-05-30 2021-05-01 55% - - 36,433 - Ain Arnat 1200MW CCPP Project 2012-11-25 2019-09-24 96% - - 840 - Jimah East Power 2x1000MW Coal

Fired Power Project 2014-08-29 2019-12-15 96% - - 8,302 - Philippine Therma Visayas 2*150MW

CFB Power Plant Project 2014-05-30 2018-03-31 97% - - 28,804 26,610 Algeria Biskra 1600MW Combined

Cycle Power Plant Project 2014-02-19 2021-01-19 76% 68 - 20,593 - Algeria Jijel 1600MW Combined Cycle

Power Plant Project 2014-02-19 2020-12-19 81% - - 25,602 - Takhiatash Power Plant Efficiency

Improvement Project 2016-12-23 2020-08-08 81% - - 3,743 - KALSEL-1 Project Coal Fired Power

Plant 2014-12-11 2019-03-31 93% - 19,703 11,916 Gaepo Public official Apartment 8th

complex Development Project 2018-06-01 2021-07-21 23% - - 7,871 - ٻ ٻ INDIA KIA MOTRORS 3,000 - ٻ - ٻ - ٻ - Thousand factory cons 2017-08-01 2020-02-29 98% Jinju Chojang District 1BL Apartment

house building 2016-09-19 2019-02-22 100% - - 103 - Bucheon Jungdong Mixed Use

Development 2018-05-31 2022-02-19 22% - - - - Yongin Samga 2 District New stay 2016-12-30 2021-03-05 63% 7,841 - - - Hanam Missa 12-1BL Officetels 2016-11-30 2020-08-02 62% - - - -

(*) Includes contracts substantially completed but in the process of commissioning or settlement negotiation as of December 31, 2019.

-54-

(In millions of Korean won) 2018 Trade receivables Due from customers for (receivables from contract work construction contracts) Contractual Accumulated completion Stage of Gross impairment Gross Provision for Contract date date (*) completion amount loss amount impairment

Uzbekistan UKAN Project 2015-02-13 2019-01-31 100% 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% - - 7,138 - Iraq Karbala Project 2014-04-15 2022-04-02 62% - - 6,580 - LOTTE Versalis SR Project 2015-08-04 2017-07-31 100% - - 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% - - 7,276 - 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 2017-08-01 100% 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 2018-08-31 100% - - - - Gwang-kyo D3 Block Complex facilities 2014-03-27 2018-05-29 100% - - 37,413 - India KIA-Motors 300 thousands cars

Manufacturing Factories Construction 2017-08-01 2019-02-28 97% - - - -

(*) Includes contracts substantially completed but in the process of commissioning or settlement negotiation as of December 31, 2018.

-55- (4) Changes in estimated total contract revenue and cost As of January 1, 2019, and December 31, 2019, 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, 2019 and 2018, and the succeeding year, and the impact on due from customers for contract work are as follows:

(In millions of Korean won) 2019 Impact on Changes in assets Changes in profit or loss and liabilities estimated total Changes in Impact on for the (due from Provisions for contract estimated total profit or loss succeeding customer/due to expected revenues (*) contract costs (*) for the year period customer amount) losses

Plant & Powers W 417,914 221,836 138,538 57,540 138,538 32,860 Building & House 268,950 233,985 36,250 (1,285) 36,250 3,978 W 686,864 455,821 174,788 56,255 174,788 36,838

(*) Effect of foreign exchange rate fluctuation is included.

(In millions of Korean won) 2018 Impact on Changes in assets Changes in profit or loss and liabilities estimated total Changes in Impact on for the (due from Provisions for contract estimated total profit or loss succeeding customer/due to expected revenues (*) contract costs (*) for the year period customer 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

(*) Effect of foreign exchange rate fluctuation is included.

(5) The Group recognizes a provision for construction warranties and changes in the warranty reserve for the years ended December 31, 2019 and 2018, as follows:

Liquidity (In millions of Korean won) 2019 classification Beginning Provision Effect of Forex Ending Non- balance (reversal) Payment conversion Others difference balance Current current

Provision for construction warranties W 126,175 20,914 (24,007) - - (2,126) 120,956 20,978 99,978 Provision for construction losses 48,158 (10,856) - - - - 37,302 37,302 - provision for litigation 14,893 (1,469) (909) - - - 12,515 135 12,380 Total W 189,226 8,589 (24,916) - - (2,126) 170,773 58,415 112,358

-56- Liquidity (In millions of Korean won) 2018 classification Beginning Provision Effect of Forex Ending Non- balance (reversal) Payment conversion Others difference balance Current current

Provision for construction warranties W 115,102 30,109 (18,657) - (27) (352) 126,175 - 126,175 Provision for construction losses - 16,322 - 31,836 - - 48,158 48,158 - provision for litigation - 15,047 (154) - - - 14,893 - 14,893 Total W 115,102 61,478 (18,811) 31,836 (27) (352) 189,226 48,158 141,068

(6) Details of joint construction project as of December 31, 2019, are as follows:

Share of joint (In millions of Korean won) construction project Ownership (%) Lead construction contractor

HYUNDAI ENGINEERING CO., Indonesia RDMP Balikpapan W 2,562,485 54.70 LTD HYUNDAI ENGINEERING & RPLC DEEP CONVERSION PROJECT [EPC] 920,994 27.60 CONSTRUCTION CO., LTD. HYUNDAI ENGINEERING & Columbia BELLO 81,431 20.00 CONSTRUCTION CO., LTD. HYUNDAI ENGINEERING & Singapore Sembcorp ICW 57,475 30.00 CONSTRUCTION CO., LTD. HYUNDAI ENGINEERING & Iraq Karbala Project 756,082 11.00 CONSTRUCTION CO., LTD. Gaepo Public official Apartment 8th complex HYUNDAI ENGINEERING & Development Project 692,872 26.70 CONSTRUCTION CO., LTD Lo Te - Rach Soi Highway Construction Pr 23,687 30.00 KUMHO INDUSTRIAL CO., LTD. W 5,095,026

-57- 23. SELLING AND ADMINISTRATIVE EXPENSES AND BREAKDOWN OF EXPENSES BY NATURE:

(1) Selling and administrative expenses for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Salaries W 153,829,631 148,814,462 Retirement and severance 13,829,346 13,981,724 Employee benefits 28,743,572 28,286,075 Depreciation 1,572,072 1,515,826 Taxes and dues 5,236,728 4,788,535 Development expenses 1,041,065 1,055,650 Advertising expenses 3,008,767 2,819,489 Commission expenses 26,130,092 22,327,506 Electronic data processing expenses 8,304,765 8,779,733 Costs for prospective projects 49,950,810 32,979,280 Rental expenses 6,808,463 8,784,520 Doubtful debts expenses 11,453,246 4,965,037 Amortization 12,360,134 40,743,136 Others 18,384,599 13,028,607 W 340,653,290 332,869,580

(2) Expenses by nature (cost of sales and selling and administrative expenses in the consolidated statements of comprehensive income) for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Raw material expenses W 1,909,092,653 1,628,388,255 Changes in other inventories 66,958,185 53,521,124 Outsourcing expenses 3,136,250,821 2,850,270,516 Employee benefit expenses (*) 740,021,473 714,946,067 Commission expenses 161,158,153 156,344,975 Costs for prospective projects 49,950,810 32,979,280 Depreciation and amortization 39,901,227 51,242,084 Rental expenses 16,117,420 29,702,011 Supplies expenses 36,660,965 21,073,512 Heavy equipment rental fees 30,284,738 23,888,945 Taxes and dues 59,028,193 59,724,022 Insurance expenses 9,222,583 14,035,095 Others 138,305,758 196,416,229 W 6,392,952,979 5,832,532,115

(*) The amounts include salaries, retirement and severance benefits and employee benefits.

-58- 24. OTHER INCOME AND EXPENSES:

Other income and expenses for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Other income Gain on foreign currency transaction W 58,873,074 46,687,217 Gain on foreign currency translation 20,572,023 23,705,226 Gain on disposal of property and equipment 745,276 552,395 Gain on disposal of intangible assets - 65,632 Gain on disposal of investment property 1,464,882 839,142 Reversal of other impairment loss 913,506 12,592,366 Reversal of provisions for litigation 5,039,547 - Lease change profit 67 - Others 2,170,185 5,094,352 W 89,778,560 89,536,330

(In thousands of Korean won) 2019 2018

Other expense Loss on foreign currency transaction W 58,075,525 43,330,976 Loss on foreign currency translation 15,325,619 15,295,047 Impairment loss on investment property 210,186 - Impairment loss on intangible assets - 2,010,167 Loss on disposal of property and equipment 526,817 380,737 Loss on disposal of intangible assets 33,492 1,100 Other impairment loss 2,011,158 21,728,971 Contribution to provisions for litigation 3,570,022 15,047,099 Donation 747,430 2,938,058 Others 3,091,912 5,865,986 W 83,592,161 106,598,141

-59- 25. FINANCE INCOME AND COSTS:

Finance income and costs for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Finance income Gain on foreign currency transaction W 2,072,735 905,157 Gain on foreign currency translation 2,455,991 6,022,605 Interest income 50,246,779 61,206,124 Dividend income 266,923 172,358 Gain on valuation of financial assets at FVPL 484,231 5,969,088 Gain on disposal of subsidiaries and associates - 22,798 W 55,526,659 74,298,130

(In thousands of Korean won) 2019 2018

Finance costs Loss on foreign currency transaction W 1,254 20,000 Loss on foreign currency translation 5,621,641 5,771,423 Interest expense 8,456,810 8,275,847 Interest expense - lease liabilities 518,260 Loss on disposal of financial assets at FVPL 7,828 27,396 Loss on valuation of financial assets at FVPL 9,798,741 835,586 Loss on disposal of subsidiaries - 10,597 Impairment loss on subsidiaries - 55,668 W 24,404,534 14,996,517

-60- 26. INCOME TAX EXPENSES:

(1) Income tax expenses for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Current tax W 100,396,980 100,807,182 Adjustment for prior years 1,237,119 113,296,947 Deferred tax due to temporary differences 39,711,325 (21,660,236) Deferred tax charged directly to equity 4,131,949 4,050,819 Adjustment on initial application of new accounting standards - 18,160,563 Income tax expenses W 145,477,373 214,655,275

(2) The tax effect relating to equity (components of OCI) for the years ended December 31, 2019 and 2018, is as follows:

(In thousands of Korean won) 2019 2018 Before tax Tax effect After tax Before tax Tax effect After tax

Changes in the fair value of financial assets at FVOCI W 371,919 (89,406) 282,513 4,820,881 (1,178,353) 3,642,528 Remeasurements of net defined benefit liabilities (57,793,026) 13,205,419 (44,587,607) (41,576,495) 10,162,417 (31,414,078) W (57,421,107) 13,116,013 (44,305,094) (36,755,614) 8,984,064 (27,771,550)

(3) Reconciliation between profit before income tax and income tax expense for the years ended December 31, 2019 and 2018, is as follows:

(In thousands of Korean won) 2019 2018

Profit before income tax W 443,948,467 493,747,283 Tax at domestic tax rates applicable to profit in the respective countries 122,085,828 125,968,722 Adjustments: Expenses not deductible for tax purposes 1,039,742 5,448,242 Tax credits (16,628,345) (3,263,118) Current adjustments for prior years 1,237,119 113,296,947 Others 37,743,029 (26,795,518) Income tax expense W 145,477,373 214,655,275 Average effective tax rate 32.8% 43.5%

-61- (4) The analysis of deferred tax assets and liabilities as of December 31, 2019 and 2018, is as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018 Deferred tax assets Deferred tax asset to be recovered after more than 12 months W 135,433,857 102,598,709 Deferred tax asset to be recovered within 12 months 23,692,402 87,567,202 159,126,259 190,165,911 Deferred tax liabilities Deferred tax liabilities to be recovered after more than 12 months (75,049,151) (60,613,494) Deferred tax liabilities to be recovered within 12 months (6,516,557) (13,601,769) (81,565,708) (74,215,263) W 77,560,551 115,950,648

(5) Temporary differences not recognized as deferred tax assets (liabilities) as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018 Temporary Deferred tax assets Temporary Deferred tax assets differences (liabilities) differences (liabilities)

Deferred tax assets Investments in subsidiaries W 67,609,407 16,252,768 44,526,016 10,883,360 Investments in associates 7,042,991 1,693,079 4,066,584 993,983 Currency translation differences - - 14,048,395 3,433,807 74,652,398 17,945,847 62,640,995 15,311,150 Deferred tax liabilities Investments in subsidiaries (60,903,045) (14,640,611) (60,581,526) (14,807,760) Investments in associates (285,389) (68,605) (501,912) (122,681) Currency translation differences (70,238,416) (16,884,761) - - W (131,426,850) (31,593,977) (61,083,438) (14,930,441)

-62- (6) The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

(In thousands of Korean won) 2019 2018 Beginning Statement of Ending Beginning Statement of Ending

balance profit or loss Equity balance balance profit or loss Equity balance

Accrued income W (9,432,517) 5,285,011 - (4,147,506) (7,470,301) (1,962,216 ) - (9,432,517) Provision for impairment 68,525,366 (43,110,540) - 25,414,826 61,210,132 7,315,234 - 68,525,366 Accrued expenses 3,033,011 181,814 - 3,214,825 3,063,521 (30,510) - 3,033,011 Provisions 45,707,999 (8,108,989) - 37,599,010 41,325,019 4,382,980 - 45,707,999 Available-for- sale financial assets - - - - 561,952 (561,952) - - Others 8,116,789 3,230,658 4,131,949 15,479,396 (4,399,912) 8,465,882 4,050,819 8,116,789 W 115,950,648 (42,522,046) 4,131,949 77,560,551 94,290,411 17,609,418 4,050,819 115,950,648

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 of December 31, 2019.

-63- 27. COMMITMENTS AND CONTINGENCIES:

(1) The payment guarantees provided to others as of December 31, 2019, are as follows:

(excluding related parties)ٻa) The payment guarantees provided to others)

(In thousands of Korean won) Beneficiary Guarantee limit Execution amount Redevelopment reconstruction Daeyeon 2 District Reconstruction and joint guarantee Maintenance Association and others W 159,736,415 129,447,012 SOC cash deficiency support Incheon-Kimpo Highway 6,480,000 - Intermediate payment group loans Gasan Terra Tower and others 1,438,930,821 1,180,065,088 Defective guarantee POSCO CONSTRUCTION 163,472 163,472

(b) Details of guarantees provided by the Group for the PF borrowings of developer as of December 31, 2019, which are not included in (a) above, are as follows:

(In thousands of Korean won) Type of bonds Guarantee Execution Description of Business area institution limit amount Maturity date guarantee Type Gwangju Other W 39,000,000 30,000,000 2020-10-23 Joint guarantee ABSTB Gyeongsangbuk-do Other 26,400,000 22,000,000 2020-10-25 Joint guarantee ABSTB Daegu Other 15,000,000 12,500,000 2022-12-14 Joint guarantee Loan Daegu Other 15,000,000 12,500,000 2022-12-14 Joint guarantee Loan Daegu Other 182,000,000 140,000,000 2020-01-10 Joint guarantee ABSTB Daegu Other 96,000,000 80,000,000 2022-06-17 Joint guarantee ABS Dajeon Other 19,500,000 15,000,000 2023-07-23 Joint guarantee ABL Dajeon Other 26,000,000 20,000,000 2020-12-04 Joint guarantee ABCP Gyeonggi-do Other 52,000,000 40,000,000 2020-03-17 Joint guarantee ABSTB Gyeonggi-do Other 65,000,000 50,000,000 2022-04-27 Joint guarantee ABSTB Reimbursement Seoul Other 70,000,000 70,000,000 2020-03-26 Undertaking ABCP Gyeonggi-do Other 12,740,000 9,800,000 2020-03-19 Joint guarantee ABS Sejong Other 24,000,000 20,000,000 2021-01-15 Joint guarantee Loan Sejong Other 24,000,000 20,000,000 2021-01-15 Joint guarantee Loan Seoul Other 19,500,000 15,000,000 2023-07-26 Joint guarantee ABL Gangwon-do Other 98,150,000 75,500,000 2020-01-03 Joint guarantee ABSTB Gyeonggi-do Other 84,000,000 70,000,000 2021-09-14 Joint guarantee ABS Seoul Other 91,000,000 70,000,000 2020-05-25 Joint guarantee ABCP Gyeonggi-do Other 22,560,000 18,800,000 2020-02-20 Joint guarantee ABSTB Seoul Other 52,000,000 40,000,000 2020-08-23 Joint guarantee ABS Seoul Other 62,400,000 48,000,000 2020-02-19 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 1,226,250,000 979,100,000

In addition, the Group provides joint guarantee of W3,587,599 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: W7,051,800 million, execution: W4,190,144 million), which exists for certain projects (Pangyo Daejang-dong Apartment house building Construction and others) for completion of construction.

-64- (2) Collateral provided to others as of December 31, 2019, is as follows:

As of December 31, 2019, the Group provided 10 checks (amount issued: W51,025 million) and 10 blank checks as collateral for performance guarantee, performance guarantee of advance received and warranty guarantee.

In addition, the Group provides W73 million of deposits as collateral to SEOUL GUARANTEE INSURANCE COMPANY, related to various license deposits, W13 million of deposits as collateral to KEB HANA BANK and others, related to leasehold deposits, and W1,338 million of deposit as collateral to HOUSING & URBAN GUARANTEE CORPORATION, related to Gaepo Public official Apartment 8th complex Development Project.

Additionally, the Group provided a deposit of W6,472 million of investment in associates, and W19,389 million of financial assets at fair value is provided as collateral with regard to guarantees of the investee company.

(3) Details of guarantees provided to the Group as of December 31, 2019, are as follows:

(In thousands of Korean won and thousands of US dollars) Guarantee Guarantor Amount Description of Guarantee

POSCO ENGINEERING CO., LTD. W 344,477 Warranty guarantee and others SEOUL GUARANTEE INSURANCE COMPANY W 275,784,622 Performance guarantee and others ENGINEERING GUARANTEE INSURANCE W 263,246,194 Performance guarantee and others(*) CONSTRUCTION GUARANTEE COOPERATIVE W 218,614,522 Performance guarantee and others(*) HOUSING & URBAN GUARANTEE Housing distribution guarantee and warranty CO. W 1,073,592,830 guarantee THE EXPORT-IMPORT BANK OF Performance guarantee, guarantee for refund of KOREA and others $ 2,416,937 advance receipts W 1,831,582,645 $ 2,416,937

(*) The Group has provided collateral for the investment related to engineering guarantee insurance.

(4) Contingencies as of December 31, 2019, are as follows:

As of December 31, 2019, the Group has a comprehensive limit agreement amounting to USD 1,408 million with a financial institution for the payment guarantee and purchase L/C (exercised amount: payment guarantee of USD 391 million and purchase L/C of USD 12 million) and has a limit agreement amounting to USD 3,740 million (exercised amount: USD 2,014 million) for performance bond and guarantee for refund of advance received. Other key contingencies are subscribed as below.

Details of major commitments with financial institutions as of December 31, 2019, are as follows:

(In thousands of Korean won and thousands of US dollars) Guarantee Execution Financial institution amount amount

KEB HANA BANK and Trade receivables factoring discount others W 545,000,000 - DEUTSCHE BANK and Foreign currency receivable factoring limit others $ 40,000 - Derivative instruments SHINHAN BANK $ 20,000 -

-65-

The Group derecognizes the trade receivables from the consolidated 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, 2019.

(5) Major insurance status

As of December 31, 2019, the Group has construction-related insurance for up to W9,930,047 million and insurance on goods for up to W1,097,194 million, which are provided by HYUNDAI MARINE & FIRE INSURANCE CO., LTD. and others.

(6) Others as of December 31, 2019, are as follows:

The Group entered into following agreements regarding non-guarantee public bonds and violation of following agreements that can cause the loss of the advantageous terms.

Debentures 7-1, 7-2

Amount ㄻ200 billion Debt ratio Managing the ratio below 500% Security right setting limit Less than 500% of the equity as of previous year-end Asset disposal restriction Restricted to dispose 100% of total assets

As of December 31, 2019, 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 W128,056 million. In addition, the Group has 32 domestic cases with claims for damages amounting to W19,727 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.

-66- 28. RELATED PARTY TRANSACTIONS:

(1) List of related parties as of December 31, 2019 and 2018, are as follows:

1) As of December 31, 2019 and 2018, 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, 2019, are as follows:

Related party

Investment companies with HYUNDAI GLOVIS CO., LTD. significant influence KIA MOTORS CORPORATION HYUNDAI MOBIS CO., LTD. Associates HYUNDAI ENGINEERING (THAILAND) CO., LTD. LHT INTERNATIONAL ENGINEERING JOINT STOCK COMPANY HYUNDAI ENGINEERING(CAMBODIA) CO., LTD. DONGBUK LRT CO., LTD. DAMAYANG GREEN DEVELOPMENT CO., LTD. SMART VALLEY INDUSTRIAL COMPLEX CO., LTD. KM ENERGY CO., LTD. SEJONG MIRAE INDUSTRIAL COMPLEX CO., LTD. SAEMANGEUM DEVELOPMENT EUMSEONG YONGSAN GENERAL INDUSTRIAL COMPLEX CORP. THE HS-CITY EXPRESSWAY HAEVICHI COUNTRY CLUB., LTD. TINA HYDROPOWER LIMITED and others Other related parties(*1) HYUNDAI ENGINEERING & STEEL INDUSTRIES CO., LTD HYUNDAI CITY CORPORATION HYUNDAI ARCHITECTS & ENGINEERS ASSOCIATE HYUNDAI FARMLAND & DEVELOPMENT CO., LTD and others Large business group affiliates(*2) HYUNDAI MOTORS COMPANY HYUNDAI STEEL COMPANY Companies included in the HYUNDAI MOTOR COMPANY GROUP

(*1) The companies are subsidiary/associate company of HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD. (*2) The Company and the Parent Company are included in THE HYUNDAI MOTOR COMPANY GROUP.

-67- (2) Sales and purchases with related parties for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 Acquisition of non- Disposal of non- Sales Purchase current assets current assets Parent company HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD. W 22,025,075 20,704,973 - - Companies with significant influence KIA MOTORS CORPORATION 107,958,307 380,879 28,830 - HYUNDAI MOBIS CO., LTD. 160,841,445 1,684,492 - - HYUNDAI GLOVIS CO., LTD. 9,378,269 103,059,061 - 21,869 Associates DONGBUK LRT CO., LTD. 6,222,956 (111,014) - - Other related parties HYUNDAI ENGINEERING & STEEL INDUSTRIES CO., LTD. and others 1,649,720 32,947,312 - - Large business group affiliates HYUNDAI MOTORS COMPANY 535,853,639 7,861,625 356,945 - HYUNDAI STEEL COMPANY 85,548,835 82,556,443 - - HYUNDAI WIA 15,564,021 3,672,912 - - HYUNDAI TRANSYS 27,280,744 13,466 - - HYUNDAI SPECIAL STEEL 33,272,000 - - - HYUNDAI ROTEM and others 427,233,839 97,530,439 4,435,481 64,829 W 1,432,828,850 350,300,588 4,821,256 86,698

(In thousands of Korean won) 2018 Acquisition of non- Disposal of non- Sales Purchase current assets current assets Parent company HYUNDAI 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 - - Other related parties HYUNDAI ENGINEERING & STEEL INDUSTRIES CO., LTD. and others 2,404,078 13,528,164 - - Large business group affiliates 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 ROTEM and others 826,600,915 45,356,053 2,135,770 - W 1,749,831,302 256,677,846 2,378,538 46,455

-68- (3) Outstanding balances arising from sales/purchases of goods and services as of December 31, 2019 and 2018 are as follows:

(In thousands of Korean won) December 31, 2019 Trade Other Other receivables receivables Trade payables payables Parent company HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD. W 3,216,999 19,777,861 12,728,281 3,756,277 Companies with significant influence KIA MOTORS CORPORATION 19,985,790 10,625 - - HYUNDAI MOBIS CO., LTD. 136,188,272 26,908 210 465,719 HYUNDAI GLOVIS CO., LTD. 2,624,850 - 5,263,058 - Associates DONGBUK LRT CO., LTD. 7,540,916 5,846,007 - 13,520,893 Others HYUNDAI Engineering & Steel Industries. And others 848,917 4,569,111 12,056,154 4,486,053 Large business group affiliates(*) HYUNDAI MOTORS COMPANY 133,927,633 1,497,710 1,181 1,375,831 HYUNDAI STEEL COMPANY 31,097,953 - 25,901,110 311,131 HYUNDAI WIA 1,439,555 97,706 34,529 - HYUNDAI TRANSYS 7,724,733 - - - HYUNDAI SPECIAL STEEL 20,042,000 - - - HYUNDAI ROTEM and others 52,359,892 710,489 1,350,730 40,560,485 W 416,997,510 32,536,417 57,335,253 64,476,389

(*) As of the end of the current term, the outstanding amount of Hyundai Card Co., Ltd. is W2,658 million, and the amount of use and repayment during the current term is W50,219 million and W50,225 million, respectively.

(In thousands of Korean won) December 31, 2018 Trade Other Trade Other receivables receivables payables payables Parent company HYUNDAI 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 5,198,740 - 12,351 Others HYUNDAI Engineering & Steel Industries and others 479,250 1,254,210 1,059,703 855,937 Large business group affiliates 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 ROTEM and others 83,993,198 10,645,054 1,117,576 8,569,069 W 370,045,834 30,851,591 53,771,561 18,739,928

In addition, as of December 31, 2019, 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 W77,606 million (December 31, 2018: W47,098 million) and W30,705 million (December 31, 2018: W53,935 million), respectively.

As of December 31, 2019, the Company has a provision for impairment of W5,053 million (December 31, 2018: W5,053 million) for the loans and other receivables of W5,053 million (December 31, 2018: W5,053 million) to HYUNDAI ENGINEERING (THAILAND) CO., LTD., an associate.

-69- (4) Financial transactions with related parties as of December 31, 2019 and 2018, are as follows:

2019 Beginning Conversion Ending (In thousands of Korean won) Description balance Increase Decrease effect balance

Associates HYUNDAI ENGINEERING Loan W 19,049,030 - - - 19,049,030 (THAILAND) CO., LTD. Provision for bad debts (19,049,030) - - - (19,049,030) HYUNDAI ENGINEERING Loan 26,598 - (9,396) - 17,202 (CAMBODIA) CO., LTD Provision for bad debts (25,435) - 9,396 - (16,039) W 1,163 - - - 1,163

2018 Beginning Conversion Ending (In thousands of Korean won) Description balance Increase Decrease effect balance

Associates HYUNDAI ENGINEERING Loan W 19,049,030 - - - 19,049,030 (THAILAND) CO., LTD. Provision for bad debts (19,049,030) - - - (19,049,030) HYUNDAI ENGINEERING Loan 26,598 - - - 26,598 (CAMBODIA) CO., LTD Provision for bad debts (25,435) - - - (25,435) W 1,163 - - - 1,163

(5) Capital transactions with related parties as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 Investment Dividend Investment Withdrawal 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 INCHEON GANGHWA INDUSTRIAL COMPLEX CO., LTD - (2,400,000) - 40,000 SAEMANGEUM DEVELOPMENT 540,000 - - - CHEONGJU TECHNOPOLIS CO., LTD. - (290,000) - - LHT INTERNATIONAL ENGINEERING JOINT STOCK COMPANY - (388,174) - 5,861 EUMSEONG YONGSAN GENERAL INDUSTRIAL COMPLEX Corp. 100,000 - - - DONGBUK LRT CO., LTD 10,593,400 - - - Large business group affiliates HYUNDAI AUTOEVER CO., LTD. - (4,607,327) - 90,031 BUSAN FINANCE - (1,814,250) - -

-70- (In thousands of Korean won) 2018 Investment Dividend Investment Withdrawal 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 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

(6) Details of guarantees and collateral provided to related parties as of December 31, 2019, are as follows:

(In millions of Korean won) Guaranteed Guarantee Detail amount Guaranteed by Payment guarantee The HS-CITY EXPRESSWAY (supplemental funding) W 3,512 NONGHYUP BANK and others

(7) The compensation paid or payable to key management for employee services amounted to W24,272 million (2018: W21,478 million) for the year ended December 31, 2019.

-71- 29. SUPPLEMENTAL CASH FLOW INFORMATION:

(1) Reconciliations between operating profit and net cash inflow (outflow) from operating activities for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Expenses not involving cash outflows Depreciation W 6,727,346 7,661,472 Amortization 15,059,575 43,580,612 Accrual for defined benefit obligation 33,248,313 30,253,869 Other long-term employee benefits 3,847,633 1,968,956 Loss on foreign currency translation 20,947,260 21,066,470 Impairment loss 11,453,246 4,965,037 Other impairment loss 2,011,158 21,728,971 Depreciation of right-of-use asset 19,006,968 - Provision for expected loss 4,807,413 31,321,852 Provision for construction warranties 21,614,513 30,923,848 Impairment loss on inventories 568,331 549,230 Loss on disposal of property, plant and equipment 526,817 380,737 Impairment loss on investment assets 210,186 - Loss on disposal of intangible assets 33,492 1,100 Loss on disposal of subsidiaries and associates - 10,597 Impairment loss on subsidiaries and associates - 55,668 Equity losses on investments 1,467,368 3,268,458 Interest expense 8,975,070 8,275,847 Income tax expense 145,477,373 214,655,275 Miscellaneous loss 1,514,751 123,765 Loss on disposal of financial assets at FVPL 7,828 27,396 Loss on valuation of financial assets at FVPL 9,798,741 835,586 Provision for litigation 3,570,022 15,047,099 Impairment loss on disposal of intangible assets - 2,010,167 W 310,873,404 438,712,012

Income not involving cash inflows Gain on foreign currency translation W 23,028,014 29,727,832 Gain on disposal of property, plant and equipment 745,276 552,395 Gain on disposal of intangible assets - 65,632 Reversal of provision for construction warranties 700,086 814,391 Reversal of provision for expected loss 15,663,521 15,000,052 Reversal of provision for litigation 5,039,547 - Gain on disposal of subsidiaries and associates - 22,798 Gain on valuation of financial assets at FVPL 484,231 5,969,088 Gain on disposal of investment assets 1,464,882 839,142 Reversal of other impairment loss 913,506 12,592,366 Equity income on investments - 1,084,305 Interest income 50,246,779 61,206,124 Dividend income 266,923 172,358 Lease change profit 67 - W 98,552,832 128,046,483

-72- (2) Significant transactions not affecting cash flows for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Reclassification of current portion of debentures W 100,000,000 100,000,000 Acquisition of right-of-use assets 58,480,183 - - ٻ Liquidity substitution of lease 33,059,425 1,130,086,000 ٻ - Reclassification of long-term financial instruments - ٻ Liquidity substitution of progress payment 27,787,500 - ٻ Liquidity substitution of non-current guarantee 172,905,549 Liquidity substitution of non-current deposit liabilities 14,688,810 -

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

(In thousands of Korean won) Non-cash changes Beginning Ending Balance Cash flows Reclassification Amortization Balance

Dividend payable W 1,996 (86,963,666) 86,964,072 - 2,402 Current portion of debentures 99,934,016 (100,000,000) 100,000,000 41,961 99,975,977 Short-term borrowings 5,798,663 (5,798,663) - - - Debentures 199,708,384 - (100,000,000) 162,199 99,870,583 Lease liabilities - (19,212,617) 58,480,183 (67) 39,267,499 W 305,443,059 (211,974,946) 145,444,255 204,093 239,116,461

-73- 30. 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 of December 31, 2019, are presented in a currency other than the functional currency. As of December 31, 2019 and 2018, 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 Korean won) 2019 Impact on profit or loss before tax and Book value equity Assets Liabilities Increase (10%) Decrease (10%)

(16,754,582) ٻ USD W 715,056,937 547,511,118 16,754,582 (3,904,975) ٻ EUR 97,345,994 58,296,242 3,904,975 (2,697,996) ٻ IQD 83,687,937 56,707,980 2,697,996 (5,800,868) ٻ DZD 77,637,159 19,628,476 5,800,868 (3,848,812) ٻ LYD 38,643,023 154,904 3,848,812 18,982,702 ٻ (Others 190,465,772 380,292,794 (18,982,702 (14,024,531) ٻ W 1,202,836,822 1,062,591,514 14,024,531

(In thousands of Korean won) 2018 Impact on profit or loss before tax and Book value 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

(2) Interest rate risk

Interest rate risk is the risk that changes in interest income or expense arising from deposits or borrowings that 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 in the consolidated statements of financial position date and the change in interest rate of 100bp on profit or loss before income taxes is as follows.

(In thousands of Korean won) 2019 2018 Increase (10%) Decrease (10%) Increase (10%) Decrease (10%)

Short-term borrowings W - - (25,451) 25,451

-74- (3) Price risk

Most of the investment classified as financial assets at FVPL in the consolidated statements of financial position are not exposed to price risk because the fair value of unlisted securities has not significantly changed.

(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 that credit risk is limited. If a customer with operating activities such as construction contract is 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, 2019 and 2018, is as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018 Maximum Maximum Book value exposure Book value exposure

Cash and cash equivalents W 1,188,171,056 1,188,171,056 523,992,067 523,992,067 Short-term and long-term financial instruments 1,211,423,905 1,211,423,905 1,731,823,575 1,731,823,575 Trade receivables 866,435,588 866,435,588 878,698,322 878,698,322 Other receivables 392,336,352 392,336,352 233,981,096 233,981,096 Long-term other receivables 438,827,784 438,827,784 551,626,591 551,626,591 Financial assets at FVPL 26,335,903 26,335,903 30,903,442 30,903,442 Financial assets at FVOCI 28,150,357 28,150,357 34,740,852 34,740,852 Financial guarantee liabilities 27,501,671 2,298,604,667 29,177,427 1,615,096,798 W 4,179,182,616 6,450,285,612 4,014,943,372 5,600,862,743

(5) Liquidity risk

The Group monitors rolling forecasts of its liquidity requirements to ensure it has sufficient cash to meet operational needs at all times so that it does not breach the 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 consolidated statements of financial position liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.

Surplus cash held by the Group over and above balance required for working capital management is 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 headroom as determined by the above-mentioned forecasts. As of December 31, 2019, the Group has cash and cash equivalents and short-term financial instruments of W2,398,171 million (2018: W2,254,464 million) that are expected to readily generate cash inflows for managing liquidity risk.

-75- Details of the Group’s liquidity risk analysis as of December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) December 31, 2019 Between Less than 1 year 1 and 5 years Total

Trade payables W 844,363,860 - 844,363,860 Other payables 204,861,673 - 204,861,673 Debentures 103,139,485 107,750,015 210,889,500 Long-term other payables - 98,039,288 98,039,288 Financial guarantee liabilities 2,298,604,667 - 2,298,604,667 W 3,450,969,685 205,789,303 3,656,758,988

(In thousands of Korean 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

The above amounts are the undiscounted amounts and include interest expenses.

(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 of December 31, 2019 and 2018, is as follows:

(In thousands of Korean won) December 31, 2019 December 31, 2018

Total liability(A) W 2,820,485,832 2,863,610,808 Total equity(B) 3,502,029,915 3,383,282,294 Debt ratio(A/B) 81% 85%

31. US DOLLAR AMOUNTS:

The Group operates primarily in Korean won and its accounting records are maintained in Korean won. The US dollar amounts provided herein represent supplementary information solely for the convenience of the readers. All Korean won amounts are expressed in US dollars at $1: W1,157.8, the exchange rate in effect on December 31, 2019. 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 Korean won amounts shown could be readily converted, realized or settled in US dollars at this or any other rate.

The December 31, 2018, US dollar amounts, which were previously expressed at $1: W1,118.1, the rate in effect on December 31, 2018, have been restated to reflect the exchange rate in effect on December 31, 2019.

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