Samsung Engineering Co., Ltd. and Subsidiaries

Consolidated Financial Statements December 31, 2018 and 2017 Samsung Engineering Co., Ltd. and Subsidiaries Index December 31, 2018 and 2017

Pages

Independent Auditor’s Report...... 1 - 5

Consolidated Financial Statements

Consolidated Statements of Financial Position ...... 6 - 7

Consolidated Statements of Profit or Loss ……………………………………. 8

Consolidated Statements of Comprehensive Income...... 9

Consolidated Statements of Changes in Equity ...... 10 - 11

Consolidated Statements of Cash Flows ...... 12

Notes to the Consolidated Financial Statements...... 13 - 108

Independent Auditor’s Report

(English Translation of a Report Originally Issued in Korean)

To the Board of Directors and Shareholders of Samsung Engineering Co., Ltd.

Opinion We have audited the accompanying consolidated financial statements of Samsung Engineering Co., Ltd. and its subsidiaries (collectively referred to as the "Group"), which comprise the consolidated statements of financial position as at December 31, 2018 and 2017, and the consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years 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 consolidated financial position of the Group as at December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS).

Basis for Opinion We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s 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 of the Republic of Korea that are relevant to our audit of the consolidated financial statements and we have fulfilled our other ethical responsibilities in accordance with the ethical 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 Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our 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.

(1) Revenue recognition based on the input method

Reason why the matter was determined to be a key audit matter

As explained in Note 2.17(Revenue recognition) to the consolidated financial statements, when the outcome of a construction contract can be estimated reliably, the contract revenue and contract costs shall be recognized by reference to the progress of the construction contract activity at the end of the reporting period. Moreover, the Group determines the progress rate of construction contract by using the methods that can reliably measure the work performed for the related construction. Therefore, the progress rate of contract is progress rate of contract is measured by the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs except for the contract costs that do not reflect work performed. As explained in Note 3(Critical Accounting Estimates and Assumptions) to the consolidated financial statements, total contract revenue is measured based on the initial agreed contract amount. However, the measurement of contract revenue is affected by a variety of uncertainties that depend on the outcome of future event; for example, the amount of contract revenue may increase as a result of variations in contract work, claims and inventive payments, or may decrease as a result of penalties arising from delays caused by the Group in the course of completing the contract. The measurement of contract revenue is also affected by the percentage of completion measured based on costs incurred to date. Total contract costs are estimated based on future estimates of material costs, labor costs, construction period and others. Moreover, as explained in Note 26(Engineering Contracts) to the consolidated financial statements, due to the nature of construction contract, the uncertainty of estimating total contract revenue increases and there is a possibility that changes in estimation of total contract revenue and total contract cost will affect the profit or loss for the year (or for the succeeding year); therefore, we identified revenue recognition based on the input method as a significant risk.

How our audit addressed the Key Audit Matter

In respect of the Group’s revenue recognition based on the input method, key audit procedures performed are as follows:

ㆍReviewing changes in accounting policy for revenue recognition from adoption of Korean IFRS 1115.

ㆍUnderstanding and evaluating internal control of the Group in relation to entering into new contract and modifying the amount of contract revenue.

ㆍUnderstanding and evaluating internal control of the Group in relation to initial and modified approval of estimated total contract cost.

ㆍUnderstanding and evaluating input cost aggregation process and appropriateness of calculation of project progress rate by project.

ㆍInspecting new contracts and contracts with modification of contract amount

ㆍReconciling estimated costs approved in field work with those entered in the system.

ㆍUnderstanding accounting policy for estimation of liquidation damage and reviewing reasonableness of evaluation of liquidation damage.

ㆍReviewing journal entries in relation to transfer of costs between projects.

ㆍReconciling calculation data of physical process rate with the construction progress rate based on input cost, and reviewing the differences.

ㆍAgreeing amount of input costs incurred, the reporting period reported, and the related project with the underlying supporting document.

ㆍPerforming analytically review about current project progress and significant changes for key projects.

ㆍFor projects for which the balance of due from customers for contract increased significantly, verifying reasons of the increase.

(2) Assessment on the feasibility of Deferred Tax Asset

Reason why the matter was determined to be a key audit matter

Deferred tax assets comprise a material portion of the Group’s consolidated financial statement. The estimation of deferred tax assets requires use of the Group's business plan to verify that the tax saving effect will be realized in the future. Because the reasonableness of the business plan depends on the Group's internal process, competency of the evaluator and proper estimation of macro-economics, there is a risk that estimated business plan may not be appropriate. There is also high risk of error in estimating the feasibility of deferred tax assets because the estimation process requires a considerable level of knowledge in taxation. Taking this into consideration, we identified assessment on feasibility of the deferred tax asset as a significant risk factor.

How our audit addressed the Key Audit Matter

In relation to the assessment on feasibility assessment of the deferred tax asset, key audit procedures performed are as follows:

ㆍVerifying and making inquiries about the business plan the Group applied in the assessment of the feasibility of the deferred tax asset

ㆍVerifying the profit estimation data applied in the assessment on the feasibility of the deferred tax asset conform with the business plan approved by the management

ㆍRecalculating the impairment test data of the deferred tax asset prepared by the Group.

Other Matter

Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries.

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

In preparing the consolidated financial statements, management is responsible for assessing the Group’ s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations.

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

Auditor’s 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 auditor’ s 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 Korean Standards on Auditing 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 Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. · Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. · Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. · Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the 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 auditor’s 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 auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. · Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. · Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

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

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

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

The engagement partner on the audit resulting in this independent auditor’s report is Seung-Whan Lee, Certified Public Accountant.

Seoul, Korea March 13, 2019

This report is effective as of March 13, 2019, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

5 Samsung Engineering Co.,Ltd. and Subsidiaries Consolidated Statements of Financial Position December 31, 2018 and 2017

(in thousands of Korean won) Notes 2018 2017

Assets Current assets Cash and cash equivalents 4,5,7 ￦ 369,360,461 ￦ 745,120,509 Short-term financial instruments 5,7 51,245,796 72,806,923 Financial assets at fair value through profit or loss 7,11 - 20,109,971 Trade receivables 7,8,9 1,383,112,329 1,311,634,318 Due from customers for contract work 7,9,26 595,208,836 774,325,114 Other receivables 7,9 109,903,081 80,975,965 Current portion of held-to-maturity securities 7,14 - 66,990 Current portion of financial assets at amortized cost 7,13 152,345 - Derivative financial instruments 6,7,36 2,065,909 8,652,154 Firm commitment assets 36 2,421,843 13,440,787 Advanced payments 9 169,031,616 117,728,455 Prepaid expenses 113,407,473 27,502,975 Prepaid construction expenses 32,165,238 19,295,718 Short-term loan receivable 7,9 20,864,656 22,977,784 Other current assets 7 106,436,188 77,163,796 Current tax assets 30 17,202,155 11,339,933 2,972,577,926 3,303,141,392

Non-current assets Available-for-sale financial assets 6,7,12 - 35,941,897 Financial assets measured at fair value through other comprehensive income 6,7,10 31,106,861 - Financial assets measured at fair value through profit or loss 6,7,10 6,925,147 - Held-to-maturity financial assets 7,13 - 469,380 Financial assets at amortized cost 7,14 466,720 - Derivative financial instruments 6,7,36 694,365 1,646,636 Firm commitment assets 36 3,730,354 685,330 Investments in associates and joint venture 15 44,046,442 32,390,632 Property, plant and equipment 18 397,918,404 426,764,584 Intangible assets 19 54,811,133 71,088,938 Investment properties 17 190,497,925 193,261,901 Long-term guarantee deposits provided 5,7 119,272,168 189,111,127 Long-term prepaid expenses 1,200,417 976,971 Other non-current assets 5,7,9 14,877,677 18,810,072 Deferred tax assets 30 790,387,612 809,535,541 1,655,935,225 1,780,683,009 Total assets ￦ 4,628,513,151 ￦ 5,083,824,401

8 Samsung Engineering Co.,Ltd. and Subsidiaries Consolidated Statements of Financial Position December 31, 2018 and 2017

(in thousands of Korean won) Notes 2018 2017

Liabilities Current liabilities Trade payables 7 ￦ 502,477,317 ￦ 478,088,408 Other payables 7 321,354,441 291,254,493 Borrowings and other financial liabilities 7,20 438,544,447 928,885,963 Current portion of bonds 7,20 80,000,000 121,000,000 Current portion of long-term borrowings 7,20 39,000,000 127,000,000 Due to customers for contract work 26 1,576,987,377 1,383,274,074 Derivative financial instruments 6,7,36 18,610,234 6,474,910 Firm commitment liabilities 36 750,371 8,505,357 Withholdings 128,596,145 143,475,226 Accrued expenses 7 84,323,141 45,766,016 Other current liabilities 7,22 148,926,123 121,718,178 Current tax liabilities 30 11,607,032 22,589,284 3,351,176,628 3,678,031,909 Non-current liabilities Bonds 7,20 - 80,000,000 Long-term borrowings 7,20 - 188,000,000 Derivative financial instruments 6,7,36 16,323,882 51,444 Firm commitment liabilities 36 204 240,078 Net defined benefit liabilities 21 49,973,727 43,404,025 Other non-current liabilities 7,22 153,800,278 76,106,741 Deferred tax liabilities 30 23,468,771 13,325,423 243,566,862 401,127,711 Total liabilities 3,594,743,490 4,079,159,620

Equity Share capital 23 980,000,000 980,000,000 Retained earnings 24 233,681,870 169,590,585 Other components of equity 25 (158,701,125) (123,404,037) Equity attributable to owners of the Parent Company 1,054,980,745 1,026,186,548 Non-controlling interest (21,211,084) (21,521,767) Total equity 1,033,769,661 1,004,664,781 Total liabilities and equity ￦ 4,628,513,151 ￦ 5,083,824,401

The above consolidated statements of financial position should be read in conjunction with the accompanying notes.

9 Samsung Engineering Co.,Ltd. and Subsidiaries Consolidated Statements of Profit or Loss Years Ended December 31, 2018 and 2017

(in thousands of Korean won, except per share amounts) Notes 2018 2017

Sales 26 ￦ 5,479,801,109 ￦ 5,536,227,289

Cost of sales 27 4,931,853,067 5,174,802,018

Gross profit 547,948,042 361,425,271

Selling, general and administrative expenses 27,28 341,867,251 314,529,790

Operating profit 206,080,791 46,895,481

Other income 29 178,041,611 184,148,252 Other expenses 29 180,224,890 230,472,243 Share of profit of associates 15 4,956,052 4,524,117 Share of loss of associates 15 4,849 1,762 Finance income Interest income 11,332,817 8,217,925 Gain on foreign currency transactions 49,282,329 78,306,933 Gain on foreign currency translation 238,700 5,779,730 60,853,846 92,304,588 Finance costs Interest expenses 41,761,082 24,865,397 Loss on foreign currency transactions 57,223,899 95,354,427 Loss on foreign currency translation 540,922 6,826,685 99,525,903 127,046,509

Profit (loss) before income tax 170,176,658 (29,648,076) Income tax expense 30 99,980,222 22,498,351

Profit (loss) for the year 70,196,436 (52,146,427)

Profit (loss) is attributable to: Owners of the Parent Company ￦ 68,684,743 ￦ (45,351,090) Non-controlling interests 1,511,693 (6,795,337)

Earnings (loss) per share attributable to owners of the Parent Company Basic earnings (loss) per share 31 ￦ 350 ￦ (231) Diluted earnings (loss) per share 31 350 (231)

The above consolidated statements of profit or loss should be read in conjunction with the accompanying notes.

10 Samsung Engineering Co.,Ltd. and Subsidiaries Consolidated Statements of Comprehensive Income Years Ended December 31, 2018 and 2017

(in thousands of Korean won) Notes 2018 2017

Profit (loss) for the year ￦ 70,196,435 ￦ (52,146,427) Other comprehensive income Items that will not be reclassified to profit or loss Remeasurements of net defined benefit liability 21 (21,479,288) (5,946,069) Valuation of financial assets measured at fair value 7,10 1,971,446 - through other comprehensive income Income tax effect of other comprehensive income 30 4,770,900 1,438,949

Items to be subsequently reclassified to profit or loss: Change in value of available-for-sale financial assets 7,12 - (353,160) Valuation of derivative financial instruments 7 (32,202,093) 34,637,610 Foreign currency translation differences (2,705,080) 41,768,284 Share of other comprehensive income of associates 6,688,829 (2,641,100) Income tax effect of other comprehensive income 30 7,792,907 (8,296,837) Other comprehensive income for the year, net of tax (35,162,379) 60,607,677

Total comprehensive income for the year ￦ 35,034,056 ￦ 8,461,250

Total comprehensive income for the year is attributable to: Owners of the Parent Company ￦ 34,723,373 ￦ 15,256,803 Non-controlling interest 310,683 (6,795,554)

The above consolidated statements of comprehensive income should be read in conjunction with the accompanying notes.

11 Samsung Engineering Co.,Ltd. and Subsidiaries Consolidated Statements of Changes in Equity Years Ended December 31, 2018 and 2017

(in thousands of Korean won) Attributable to owners of the Parent Company Other Notes Retained Components Non-controlling Total Share capitalShare premium earnings of equity Interest Equity

Balance at January 1, 2017 ￦ 980,000,000 ￦ 473,753,257 ￦ (197,770,929) ￦ (245,044,866) ￦ (14,733,931) ￦ 996,203,531 Total comprehensive income Loss for the year - - (45,351,090) - (6,795,337) (52,146,427) Change in value of available-for-sale financial assets 12 - - - (267,695) - (267,695) Gain on valuation of derivative 36 - - - 26,255,309 - 26,255,309 Share of other comprehensive income of associates 15 - - - (2,641,100) - (2,641,100) Gain on translation of foreign operations - - - 41,768,500 (216) 41,768,284 Remeasurements of net defined benefit liability 21 - - - (4,507,120) - (4,507,120) Total comprehensive income - - (45,351,090) 60,607,894 (6,795,553) 8,461,251

Transactions with owners Issuance of shares of subsidiary - - - (7,718) 7,718 - Transfer of other capital surplus of associates (19,370) 19,370 Reducing accumulated deficit - (473,753,257) 473,753,257 - - - Disposition of loss on sale of treasury shares - - (61,021,284) 61,021,284 - - Total transactions with owners - (473,753,257) 412,712,603 61,032,936 7,718 - Balance at December 31, 2017 ￦ 980,000,000 ￦ - ￦ 169,590,584 ￦ (123,404,036) ￦ (21,521,767) ￦ 1,004,664,781

12 Samsung Engineering Co.,Ltd. and Subsidiaries Consolidated Statements of Changes in Equity Years Ended December 31, 2018 and 2017

(in thousands of Korean won) Attributable to owners of the Parent Company Other Notes Retained Components Non-controlling Total Share capital Share premium earnings of Equity Interest Equity

Balance at January 1, 2018 ￦ 980,000,000 ￦ - ￦ 169,590,584 ￦ (123,404,036) ￦ (21,521,767) ￦ 1,004,664,781 Changes in accounting policy - - (4,593,458) (1,335,718) - (5,929,176) Restated total equity at the beginning of the financial year 980,000,000 - 164,997,126 (124,739,754) (21,521,767) 998,735,605

Total comprehensive income Profit for the year - - 68,684,743 - 1,511,693 70,196,436 Gain on valuation of financial assets at fair value 10 - - - 1,496,359 - 1,496,359 through other comprehensive income Loss on valuation of derivative 36 - - - (24,409,187) - (24,409,187) Share of other comprehensive income of associates 15 - - - 6,688,829 - 6,688,829 Loss on translation of foreign operations - - - (1,504,071) (1,201,010) (2,705,081) Remeasurements of net defined benefit liability 21 - - - (16,233,301) - (16,233,301) Total comprehensive income - - 68,684,743 (33,961,371) 310,683 35,034,055 Balance at December 31, 2018 ￦ 980,000,000 ￦ - ￦ 233,681,869 ￦ (158,701,125) ￦ (21,211,084) ￦ 1,033,769,660

The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.

13 Samsung Engineering Co.,Ltd. and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31, 2018 and 2017

(in thousands of Korean won) Notes 2018 2017

Cash flows from operating activities Profit (Loss) for the year ￦ 70,196,435 ￦ (52,146,427) Adjustments 33 247,567,752 123,656,606 Changes in operating assets and liabilities 33 233,780,847 (83,859,757) Interest received 10,362,700 6,532,023 Interest paid (44,991,264) (51,446,719) Dividends received 2,502,583 5,362,565 Income tax paid (73,170,671) (82,139,046) Net cash inflow (outflow) from operating activities 446,248,382 (134,040,755)

Cash flows from investing activities Proceeds from disposal of property, plant and equipment 12,413,852 6,186,186 Proceeds from disposal of intangible assets - 1,943,501 Net decrease in financial assets 21,561,127 2,815,229 Proceeds of current portion of held-to-maturity financial assets - 84,515 Proceeds of current portion of financial assets at amortized cost 74,085 - Decrease in short-term loan receivables 13,492,965 8,392,091 Increase in short-term loan receivables (7,000,000) (19,200,000) Acquisition of investments in associates (15,777) - Disposal of investments in associates - 376,933 Decrease in other non-current assets - 62,981 Increase in other non-current assets (80,826) (55,633) Acquisition of held-to-maturity financial assets - (87,920) Acquisition of financial assets at amortized cost (156,780) - Acquisition of property, plant and equipment (14,606,916) (13,799,220) Acquisition of intangible assets (9,321,965) (8,634,827) Increase in guarantee deposits provided (6,494,303) (3,054,347) Decrease in guarantee deposits provided 10,828,496 9,728,110 Net cash inflow (outflow) from investing activities 20,693,958 (15,242,401)

Cash flows from financing activities Net increase(decrease) from short-term borrowings 27 (456,142,124) 252,500,725 Repayment of current portion of long-term borrowings (127,000,000) (565,836,250) Proceeds from long-term borrowings 23 - 150,000,000 Repayment of long-term borrowings (149,000,000) - Proceeds from bonds 23 - 201,000,000 Repayment of bonds (121,000,000) - Proceeds from derivative related to long-term borrowings 23 (601,550) 397,200 Increase in leasehold deposits 4,570,902 - Net cash inflow (outflow) from financing activities (849,172,772) 38,061,675

Effects of exchange rate changes on cash and cash equivalents 6,470,382 (25,836,534) Net decrease in cash and cash equivalents (375,760,050) (137,058,015) Cash and cash equivalents at the beginning of the financial year 745,120,510 882,178,525 Cash and cash equivalents at the end of the year ￦ 369,360,460 ￦ 745,120,510

The above consolidated statements of cash flows should be read in conjunction with the accompanying notes.

14 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

1. General information

These consolidated financial statements consist of the financial statements of Samsung Engineering Co., Ltd. (“SECL” or the “The Company”), as the parent company, and its 22 subsidiaries in overseas (collectively referred to as the “Group”), two special purposed entities and five associates and joint ventures, and have been prepared in accordance with Korean IFRS 1110 Consolidated financial statements.

SECL was established on January 20, 1970, under the Commercial Law of the Republic of Korea to engage in the engineering services for plant and other construction. The Company listed its shares on the Korea Stock Exchange on December 24, 1996. Its registered office is in Seoul, Korea. As at December 31, 2018, its share capital is ￦ 980,000,000 thousand, and the largest shareholder is Samsung SDI Co., Ltd., which has 11.69 % ownership.

As at December 31, 2018, its major shareholders are as follows:

Name of shareholders Number of shares Ownership (%)

Samsung SDI Co., Ltd. 22,918,426 11.69 National Pension Service 17,064,009 8.71 Samsung C&T 13,668,989 6.97 BlackRock Fund Advisors 5,536,558 2.82 RWC Partners 4,833,964 2.47 Vanguard 4,190,946 2.14

13 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

Consolidated subsidiaries

As at December 31, 2018, details on subsidiaries are stated below:

Number of shares owned by Name of Subsidiary Ownership Fiscal year SECL Subsidiary Total (%) (*1) end Location

Samsung Saudi Arabia 1,423,800 200 1,424,000 100 December 31 Saudi Arabia Co., Ltd. Samsung EPC Company - 37,500 37,500 75.00 December 31 Saudi Arabia Ltd. Samsung Engineering Construction - - - 100 December 31 China (Shanghai) Co., Ltd. Samsung Ingenieria 99,900 - 99,900 99.90 December 31 Mexico Manzanillo S.A. de C.V. Samsung Engineering Trinidad and - - - 100 December 31 Trinidad Co., Ltd. Tobago Samsung Engineering 15,749,990 - 15,749,990 99.99 March 31 India India Private Ltd. Samsung Engineering 121,500,000 - 121,500,000 100 December 31 USA America Inc. SEA Construction LLC - - - 100 December 31 USA SEA Louisiana - 10,000 10,000 100 December 31 USA Construction Inc. Grupo Samsung Ingenieria 19,999 - 19,999 99.99 December 31 Mexico Mexico S.A. de C.V. Samsung Engineering - - - 100 December 31 Kazakhstan Kazakhstan LLP Samsung Engineering(Malaysia) 750,000 - 750,000 100 December 31 Malaysia SDN. BHD Samsung Ingenieria Mexico Construccion Y 49,950 - 49,950 99.90 December 31 Mexico Operacion S.A. de C.V. Samsung Engineering 63,437 - 63,437 49.99 December 31 Thailand (Thailand) Co., Ltd.(*2) Samsung Ingenieria 9,999 - 9,999 99.99 December 31 Mexico Energia S.A. de C.V. Muharraq Wastewater 259 1 260 65.00 December 31 Bahrain Services Company W.L.L. Samsung Engineering 983,098 - 983,098 99.99 March 31 Bolivia Bolivia S.A Samsung Engineering - - - 100 December 31 Vietnam Vietnam Co., Ltd. Samsung Ingenieria DUBA 9,999 - 9,999 99.99 December 31 Mexico S.A. De C.V. Samsung Engineering Construction Xi' an Co., - - - 100 December 31 China Ltd.

14 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

Number of shares owned by Name of Subsidiary Ownership Fiscal year SECL Subsidiary Total (%) (*1) end Location

Samsung Engineering - - - 100 December 31 Hungary Hungary Ltd. Samsung Engineering Italy - - - 100 December 31 Italy S.R.L.(*4) Republic of CES 1st Co., Ltd (*3) - - - - November 30 Korea Republic of CES 2nd Co., Ltd (*3) - - - - November 30 Korea

(*1) The interests of the subsidiaries are considered as the interests of the Group in these subsidiaries.

(*2) The Group has been delegated by the shareholders of Samsung Engineering (Thailand) Co., Ltd. and its subsidiaries (approximately 49.99 %) the full authority to make decisions to appoint or dismiss directors and management. Although the Group has less than a majority ownership, it is determined that the Group has effective control, given the fact that it has an ability to appoint or dismiss a majority of the Board of Directors.

(*3) Those company conducts special purpose activities for the Company. The Group does not have ownership of the entities. However, since the Group has the power to direct the investee’s activities, and has the exposure, or rights, to variable returns from its involvement with the investee, and has the ability to use its power over the investee to affect the amount of the investor’s returns. Therefore, it is determined that the Group had control over the entities through the ability to effect on variable returns of the Company.

(*4) The Company is newly established during the year ended December 31, 2018.

15 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

Summarized statements of financial position of major subsidiaries as at December 31, 2018, are as follows:

(In thousands of Korean won) Samsung Engineering Samsung Samsung Construction Engineering Engineering Samsung Saudi (Shanghai) Co., Vietnam Co., (Malaysia) SDN., Arabia Co., Ltd. Ltd Ltd. BHD

Current assets \ 209,518,904 \ 104,466,449 \ 35,241,482 \ 98,498,855 Non-current assets 2,262,219 1,338,250 1,319,721 2,235,449 Total assets 211,781,123 105,804,699 36,561,203 100,734,304 Current liabilities 243,144,888 35,223,974 9,038,111 14,516,429 Non-current liabilities 100,216,374 14,746,897 3,818,450 12,525,834 Total liabilities 343,361,262 49,970,871 12,856,561 27,042,263 Net assets \ (131,580,139) \ 55,833,828 \ 23,704,642 \ 73,692,041

The summarized statements above displays figures after consideration of goodwill arising from business combination, fair value adjustment, policy difference adjustment; however, the intra Group transactions have not been eliminated.

The summarized statements of profit or loss of major subsidiaries for the year ended December 31, 2018, are as follows:

(In thousands of Korean won) Samsung Engineering Samsung Samsung Construction Engineering Engineering Samsung Saudi (Shanghai) Co., Vietnam Co., (Malaysia) SDN., Arabia Co., Ltd. Ltd Ltd. BHD

Sales \ 29,183,816 \ 188,534,945 \ 54,371,375 \ 250,463,211 Operating profit 1,839,925 19,480,407 19,052,045 72,100,337 Profit (loss) for the year (4,182,389) 16,621,585 16,289,668 59,109,358 Other comprehensive income (15,184,561) 593,866 872,665 1,175,889 \ (19,366,950) \ 17,215,451 \ 17,162,333 \ 60,285,247

16 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of Preparation

The Group maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangeul) in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS). The accompanying consolidated financial statements have been condensed, restructured and translated into English from the Korean language financial statements.

Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Group's financial position, financial performance or cash flows, is not presented in the accompanying consolidated financial statements.

The consolidated financial statements of the Group have been prepared in accordance with Korean IFRS. These are the standards, subsequent amendments and related interpretations issued by the International Accounting Standards Board (IASB) that have been adopted by the Republic of Korea. The preparation of financial statements requires the use of critical accounting estimates. Management also needs to exercise judgement in applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3.

2.2 Changes in Accounting Policy 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 their annual reporting period commencing January 1, 2018.

(a) Amendment to Korean IFRS 1028 Investments in Associates and Joint Ventures

When an investment in an associate or a joint venture is held by, or is held indirectly through, an Group that is a venture capital organization, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the Group may elect to measure each investment separately at fair value through profit or loss in accordance with Korean IFRS 1109. The amendment does not have a significant impact on the financial statements because the Group is not a venture capital organization.

(b) Amendment to Korean IFRS 1040 Transfers of Investment Property

The amendment to Korean IFRS 1040 clarifies that a transfer to, or from, investment property, including property under construction, can only be made if there has been a change in use that is

17 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

supported by evidence, and the list of evidence for a change of use in the standard was re- characterized as a non-exclusive list of example. The amendment does not have a significant impact on the financial statements.

Amendments to Korean IFRS 1102 clarify accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash- settled to equity-settled. Amendments also clarify that the measurement approach should treat the terms and conditions of a cash-settled award in the same way as for an equity-settled award. The amendment does not have a significant impact on the financial statements.

(d) Enactment of Interpretation 2122 Foreign Currency Transaction and Advance Consideration

According to the enactment, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an Group initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. The enactment does not have a significant impact on the financial statements.

18 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(e) Korean IFRS 1109 Financial Instruments

The Group has applied Korean IFRS 1109 Financial Instruments on January 1, 2018, the date of initial application. In accordance with the transitional provisions in Korean IFRS 1109, comparative figures have not been restated, and there are no differences between previous book amounts and book amounts at the date of initial application. See Note 37 for further details on the impact of the application of the standard.

(f) Korean IFRS 1115 Revenue from Contracts with Customers

The Group has applied to apply Korean IFRS 1115 Revenue from Contracts with Customers. In accordance with the transition provisions in Korean IFRS 1115, comparative figures have not been restated. The Group elected the modified retrospective approach, and recognized the cumulative impact of initially applying the revenue standard as an adjustment to retained earnings as at January 1, 2018, the period of initial application. See Note 37 for further details on the impact of the application of the standard.

(2) New standards and interpretations not yet adopted by the Group

Certain new accounting standards and interpretations that have been published that are not mandatory for annual reporting period commencing January 1, 2018 and have not been early adopted by the Group are set out below.

(a) Korean IFRS 1116 Leases

Korean IFRS 1116 Leases issued on May 22, 2017 is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. This standard will replace Korean IFRS 1017 Leases, Interpretation 2104 determining whether an Arrangement contains a Lease, Interpretation 2015 Operating Leases-Incentives, and Interpretation 2027 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

At inception of a contract, the Group shall assess whether the contract is, or contains, a lease. Also, at the date of initial application, the Group shall assess whether the contract is, or contains, a lease in accordance with the standard. However, the Group may not need to reassess all contracts with applying the practical expedient if the Group elects to apply the practical expedient only to contracts entered before the date of initial application.

For a contract that is, or contains, a lease, the Group shall account for each lease component within the contract as a lease separately from non-lease components of the contract.

A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. The lessee may elect not to apply the requirements to short-term lease (a lease term of 12 months or less at the commencement date) and low value assets (e.g. underlying assets below $ 5,000). In addition, as a practical expedient, the lessee may elect, by class of underlying asset, not to separate non- lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component.

19 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

Lessor accounting has not changed significantly from the lessor accounting under Korean IFRS 1017.

Lessee accounting

A lessee shall apply this standard to its leases either:

· retrospectively to each prior reporting period presented applying Korean IFRS 1008 Accounting Policies, Changes in Accounting Estimates and Errors (Full retrospective application); or

· retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application.

The Group plans to apply Korean IFRS 1116 retrospectively with the cumulative effect of initially applying the standard as at January 1, 2019. The Group will not restated any comparative information. Instead, the cumulative effect of applying the standard will be recognized as an adjustment to the opening balance of retained earnings (or another component of equity, as appropriate) at the date of initial application.

The Group performed an impact assessment to identify potential financial effects of applying Korean IFRS 1116. The assessment was performed based on available information as at December 31, 2018 to identify effects on 2019 financial statements.

As at December 31, 2018, the total amount of minimum lease payments before the discount of present value which The Group use with operating leases is \ 125,380 million. However, The Group will account for each lease component within the contract as a lease separately from non-lease components of entire lease contract or the contract including lease.

The Group is analyzing the effects on the financial statements; however, it is difficult to provide reasonable estimates of financial effects until the analyses is complete.

Lessor accounting

The Group expects the effect on the financial statements applying the new standard will not be significant as accounting for the Group, as a lessor, will not significantly change.

When the Group is a sub-lessor, the Group reconsiders the classification of the sublease which was classified as an operating lease before and after the date of initial application between an operating or finance lease in accordance with Korean IFRS 1116. If the Group determines that the lease is a finance lease, it is recognized as a finance lease newly contracted on the date of initial application.

As at December 31, 2018, the total amount of minimum lease payment of sublease contracts is \ 8,858 million, and The Group is analyzing the preliminary effects on the financial statements such as determination on the classification of a sublease contract as an operational or finance lease; however, it is difficult to provide reasonable estimates of financial effects until the analyses is complete.

20 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(b) Korean IFRS 1109 Financial Instruments

The narrow-scope amendments made to Korean IFRS 1109 Financial Instruments enable entities to measure certain prepayable financial assets with negative compensation at amortized cost. When a modification of a financial liability measured at amortized cost that does not result in the derecognition, a modification gain or loss shall be recognized in profit or loss. These amendments will be applied for annual periods beginning on or after January 1, 2019, with early adoption permitted.

The amendments require that an Group shall calculate current service cost and net interest for the remainder of the reporting period after a plan amendment, curtailment or settlement based on updated actuarial assumptions from the date of the change. The amendments also require that a reduction in a surplus must be recognized in profit or loss even if that surplus was not previously recognized because of the impact of the asset ceiling. The amendments are effective for plan amendments, curtailments and settlements occurring in reporting periods that begin on or after 1 January 2019.

(d) Amendments to Korean IFRS 1028 Investments in Associates and Joint Ventures

The amendments clarify that an Group shall apply Korean IFRS 1109 to financial instruments in an associate or joint venture to which the equity method is not applied. These include long-term interests that, in substance, form part of the Group’s net investment in an associate or joint venture. These amendments will be applied for annual periods beginning on or after January 1, 2019, with early adoption permitted. In accordance with the transitional provisions in Korean IFRS 1109, the restatement of the comparative information is not required and the cumulative effects of initially applying the amendments retrospectively should be recognized in the beginning balance of retained earnings (or other components of equity, as appropriate) at the date of initial application.

(e) Enactment to Interpretation of Korean IFRS 2123 Uncertainty over Income Tax Treatments

The Interpretation explains how to recognize and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment, and includes guidance on how to determine whether each uncertain tax treatment is considered separately or together. It also presents examples of circumstances where a judgement or estimate is required to be reassessed. This Interpretation will be applied for annual periods beginning on or after January 1, 2019, and an Group can either restate the comparative financial statements retrospectively or recognize the cumulative effect of initially applying the Interpretation as an adjustment in the beginning balance at the date of initial application.

21 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(f) Annual Improvements to Korean IFRS 2015 – 2017 Cycle:

 Korean IFRS 1103 Business Combination

The amendments clarify that when a party to a joint arrangement obtains control of a business that is a joint operation, and had rights to the assets and obligations for the liabilities relating to that joint operation immediately before the acquisition date, the transaction is a business combination achieved in stages. In such cases, the acquirer shall remeasure its entire previously held interest in the joint operation. These amendments will be applied to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early adoption permitted.

 Korean IFRS 1111 Joint Agreements

The amendments clarify that when a party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the join operation constitues a business. In such cases, previously held interests in the joint operation are not remeasured. These amendments will be applied to transactions in which an Group obtains joint control on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early adoption permitted.

 Paragraph 57A of Korean IFRS 1012 Income Tax

The amendement is applied to all the income tax consequences of dividends and requires an Group to recognize the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the Group originally recognized those past transactions or events. These amendments will be applied for annual reporting periods beginning on or after January 1, 2019, with early adoption permitted.

 Korean IFRS 1023 Borrowing Costs

The amendments clarify that if a specific borrowing remains outstanding after the related qualifying asset is ready for its intended use (or sale), it becomes part of general borrowings. These amendments will be applied to borrowing costs incurred on or after the beginning of the first annual reporting period beginning on or after January 1, 2019, with early adoption permitted.

2.3 Consolidation

The Group has prepared the consolidated financial statements in accordance with Korean IFRS 1110 Consolidated Financial Statements.

(a) Subsidiaries

Subsidiaries are all entities over which the Group has control. The Group controls an Group when the Group is exposed to, or has rights to, variable returns from its involvement with the Group and has the ability to affect those returns through its power to direct the activities of the Group. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

22 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

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 Group on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired Group’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.

(b) 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.

A joint arrangement, wherein two or more parties have joint control, is classified as either a joint operation or a joint venture. A joint operator recognizes its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses. Interests in joint ventures are accounted for using the equity method, after initially being recognized at cost in the consolidated statement of financial position.

2.4 Foreign Currency Translation

(a) 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 each Group operates (the “functional currency"). The consolidated financial statements are presented in Korean won, which is the Parent Company’s functional and presentation currency.

(b) 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 resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in profit or loss.

23 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

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 financial assets measured at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as financial assets measured at fair value through other comprehensive income are recognized in other comprehensive income

2.5 Financial Assets

(a) Classification

From January 1, 2018, the Group classifies its financial assets in the following measurement categories:

 those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and

 those to be measured at amortized cost.

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

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

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

(b) Measurement

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

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

A. Debt instruments

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

24 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

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

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

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

B. Equity instruments

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

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

The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortized cost and fair value through other comprehensive income. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables receivables, the Group applies the simplified approach, which requires expected lifetime credit losses to be recognized from initial recognition of the receivables.

25 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(d) Recognition and Derecognition

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

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

(e) Offsetting of financial instruments

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

2.6 Derivative Instruments

Derivatives are initially recognized at fair value on the date when a derivative contract is entered into and are subsequently remeasured at their fair value at the end of each reporting period. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognized immediately in profit or loss within ‘other income or expense’ based on the nature of transactions.

2.7 Property, Plant and Equipment

Land is measured at its fair value based on valuations by external independent valuers. Revaluations shall be made to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. Other property, plant and equipment including machinery and equipment are stated at its cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditures that is directly attributable to the acquisition of the items.

If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognized in other comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the increase shall be recognized in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss. If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognized in profit or loss. However, the decrease shall be recognized in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. The decrease recognized in other comprehensive income reduces the amount accumulated

26 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

in equity under the heading of revaluation surplus. The amount of the surplus between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost is transferred to retained earnings.

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 lives

Buildings and Structures 20 - 40 years Construction heavy equipment 10 Machinery 6 - 10 Motor vehicles 4 Leasehold improvements 6 Other equipment 4 – 20

2.8 Borrowing Costs

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

2.9 Government Grants

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

27 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

2.10 Intangible Assets

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

Software which meet the definition of an intangible asset, are amortized using the straight-line method over 4 years which is their estimated useful lives when the asset is available for use. Other intangible 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 carrying amount exceeds its recoverable amount.

2.11 Investment Property

Investment property is property held to earn rentals or for capital appreciation or both. An investment property is measured initially at its cost. An investment property is measured after initial measurement at depreciated cost (less any accumulated impairment losses). After recognition as an asset, investment property is carried at cost less accumulated depreciation and impairment losses. The Group depreciates investment properties, except for land, using the straight-line method over their useful lives of 40 years.

2.12 Impairment of Non-financial Assets

Goodwill and intangible assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

2.13 Financial Guarantee Contracts

Financial guarantee contracts are recognized as a financial liability at the time the guarantee is issued. The liability is iniially measured at fair value, subsequently at the higher of the amount determined in accordance with Korean IFRS 1037 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognized less cumulative amortization in accordance with Korean IFRS1018 Revenue, and recognized in the statement of financial position within ‘other financial liabilities’.

2.14 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.

28 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

2.15 Current and Deferred Tax

The tax expense for the year consists of current and deferred tax. Current and deferred tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.

The tax expense is measured at the amount expected to be paid to the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period

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 income 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 income 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 taxable profit or loss.

Deferred tax assets are recognized only if it is probable that future taxable amounts will be available to utilize those temporary differences and losses.

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

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the Group has a legally enforceable right to offset and intends either to settle on a net basis.

29 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

2.16 Employee Benefits

(a) Post-employment benefits

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

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

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

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

(b) Share-based payments

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

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

30 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

2.17 Revenue Recognition

(a) General Revenue Recognition

From January 1, 2018, the Group has applied Korean IFRS 1115 Revenue from Contracts with Customers.

When the outcome of a construction contract can be estimated reliably, the contract revenue and contract costs shall be recognized by reference to the progress of the construction contract activity at the end of the reporting period. Moreover, The Group determine the progress rate of construction contract by using the methods that can reliably measure the work performed for the related construction, and the progress rate of contract is measured by the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs except for the contract costs that do not reflect work performed.

based on the progress of the construction contract as of the end of the reporting period if it can estimate the revenue and costs associated with the construction contract reliably. The Group determines the progress of the construction contract using a reliable measurement method for the related construction, and the cumulative contract cost incurred for the construction performed is measured by dividing the estimated total contract cost with the exception of contract costs that do not represent the Group's performance.

If loss is expected in a construction contract, the expected loss is immediately recognized as an expense.

If the outcome of a construction contract is not reliably estimated, contract revenue is recognized only within the scope of recoverable costs and contract costs are recognized as expenses when incurred.

As of the end of the reporting period, the Group compares the total contract revenue multiplied by the cumulative progress rate and the cumulative amount charged by the end of the reporting period and discloses the difference as a due from customers or due to customers for contract work. The unconditional right to consideration is divided into trade receivables.

(b) Combination of Contracts

The Group combine two or more contracts entered into at or near the same time with the same customer (or related parties of the customer) and account for the contracts as a single contract if one or more of the following criteria are met: a. the contracts are negotiated as a package with a single commercial objective; b. the amount of consideration to be paid in one contract depends on the price or performance of the other contract; or c. the goods or services promised in the contracts are a single performance obligation.

The major business of the Group includes plant construction. In accordance with the Korean IFRS

31 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

1115, in EPC business, design, procurement and construction are closely related and not considered separate performance obligation. Therefore, the Group identifies the construction contract as one performance obligation.

(d) Performance obligation satisfied over time.

The EPC business of the Groups includes building a plant ordered by the customer which takes more than 2 years to complete. The Group recognizes revenue by using the percentage of completion method when the assets constructed has no substitute use on its own and when the Group obtains an enforceable right to payment for completed work performed. After analyzing the terms of the contract, the Group determines that it has an enforceable right to payment for performance completed to date and recognizes revenue over the period over which it performs the performance obligation.

(e) Measurement of progress using input method

The EPC business of the Group performs plant construction which is performed includes procurement, installment of special purpose equipment. The supply of the special purpose equipment and constructing plant are not considered separate performance obligation. In accordance with the Korean IFRS 1115, faithful depiction of an Group’s performance might be to recognise revenue at an amount equal to the cost of a good used to satisfy a performance obligation if the Group expects at contract inception that all of the following conditions would be met i ) the good is not distinct, ii) the customer is expected to obtain control of the good significantly before receiving services related to the good, iii) the cost of the transferred good is significant relative to the total expected costs to completely satisfy the performance obligation; and iv) the Group procures the good from a third party and is not significantly involved in designing and manufacturing the good. However, since supplying special equipment does not meet the above conditions, the special equipment cost is included in the progress calculation.

(f) Variable Consideration

In measuring the consideration to which the Group will be entitled, the Group recognizes revenue by including variable consideration in the transaction price up to an amount that is highly probable that a significant reversal in the cumulative amount of revenue recognized will not occur.

(g) Incremental costs of obtaining a contract

The incremental costs of obtaining a contract are costs to obtain a contract that would have been incurred regardless of whether the contract was obtained shall be recognized as an expense when incurred unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained. When the contracting costs are recognized as an asset, the contracting costs are amortized according to the percentage of completion method as contract cost.

(h) Costs to fulfill a contract.

Costs to fulfill a contract are the costs of fulfilling a contract with a customer, which are recognized as contract costs if they are directly related to the contract or to a specifically identifiable expected

32 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

contract, and the costs are expected to be recovered or increased in value to the Group's resources to be used to satisfy (or continue to fulfil) future performance obligations.

(i) Contract asset and contract liability

A contract asset is the Group's right to receive consideration for goods or services transferred to a customer, and a contract liability is defined as the Group's obligation to transfer goods or services to the customer in proportion to the consideration received by the Group (or due consideration). The Group offsets the contract assets and contract liabilities arising from one contract and presents them in the statement of financial position in net terms. The unconditional right to consideration is divided into trade receivables.

2.18 Approval of financial statement

The financial statements have been approved by the Board of Directors as of January 31, 2019, and may be approved as amended by the shareholders’ meeting.

3. Critical Accounting Estimates and Assumptions

The Group makes estimates and assumptions concerning the future. The estimates and assumptions are continuously evaluated with consideration to factors such as events reasonably predictable in the foreseeable future within the present circumstance according to historical experience. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

(a) Revenue recognition

- Uncertainty in estimating contract income and cost

Construction contracts are recognized according to the percentage-of-completion method, and progress is calculated according to the actual cumulative contract cost ratio for the estimated total cost of each contract. Total contract revenue is measured based on the initial amount of revenue agreed in the contract. However, the measurement of contract revenue is affected by a variety of uncertainties that depend on the outcome of future event; for example, the amount of contract revenue may increase as a result of variations in contract work, claims and incentive payments, on the other hand, the amount of contract revenue may decrease as a result of penalties arising from delays caused by the Group in the completion of the contract. If the Group is likely to be approved regarding variation in the revenue amount due to construction changes, etc., or if the Group is likely to meet performance standards, and the amount can be measured reliable, the estimated revenue amount can be included in the contract revenue. The construction revenue is affected by the progress rate measured based on the actual accumulated contract cost generated, and the total contract cost is estimated based on future estimates such as materials cost, labor cost, and construction period.

- Uncertainty in estimating the total contract revenue due to construction delays

33 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

The measurement of the construction revenue is influenced by various uncertainties associated with the results of future events. For contracts that are expected to be delayed due to reasons attributable to the Group, liquidation damage is estimated based on past experiences and others. As of December 31, 2018, the maximum amount of liquidation damage that could be incurred by the Group is expected to be ￦ 253,729 million due to the reasons of delay in the contract construction completion date. Of this amount, the best estimate of liquidation damage that is likely to be borne by the Group as at December 31, 2018 is ￦ 98,334 million, which was deducted from the contract revenue. The amount will be periodically revalued until the completion date. The Group is trying to minimize liquidation damage payment by making a claim to the client for the extension of the construction completion deadline and by proofing that the Group has no failure to comply with the construction completion deadline.

(b) Income tax

The Group’s taxable income generated from these operations are subject to income taxes based on tax laws and interpretations of tax authorities in numerous jurisdictions. There are many transactions and calculations for which the ultimate tax determination is uncertain. If certain portion of the taxable income is not used for investments or increase in wages or dividends in accordance with the Tax System For Recirculation of Corporate Income, the Group is liable to pay additional income tax calculated based on the tax laws. Accordingly, the measurement of current and deferred income tax is affected by the tax effects from the new tax system. As the Group’s income tax is dependent on the investments, increase in wages and dividends, there is an uncertainty measuring the final tax effects.

Meanwhile, the Group recognized deferred tax assets for unused tax losses and tax credit carried forward to the extent that determined to be realizable in the future. As at December 31, 2018, the Group determined that the unused tax credit carried forward is not realizable, so didn’t recognize deferred tax assets of ￦ 144,914 million.

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

(d) Net defined benefit liabilities

The present value of net defined benefit liability depends on a number of factors that are determined on an actuarial basis using a number of assumptions including the discount rate.

34 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

4. Cash and Cash Equivalents

Cash and cash equivalents in the consolidated statements of cash flows, consist of:

(In thousands of Korean won) 2018 2017

Cash \ 396,381 \ 370,951 Ordinary deposit and current deposits 254,759,263 613,027,780 Time Deposits 114,204,817 131,721,778 \ 369,360,461 \ 745,120,509

5. Financial Instruments Subject to Withdrawal Restrictions

Short- and long-term financial instruments subject to withdrawal restrictions as at December 31, 2018 and 2017, consist of the following:

(In thousands of Korean won) 2018 2017

Short-term financial instruments Government grant \ 1,313,042 \ 1,311,913 Guarantees of indebtedness 11,173,134 187,800 Long-term financial instruments(*1) Cash and bank deposits 15,500 15,500 Pledged assets 210,000 210,000 Guarantee deposits(*2) Customs guarantee deposits 327,823 323,655 Guarantees of indebtedness - 597,985 \ 13,039,499 \ 2,646,853

(*1) Long-term financial instruments are included in the consolidated statements of financial position as ‘other non-current assets’.

(*2) Guarantee deposits are included in the consolidated statements of financial position as ‘guarantees deposits provided’.

35 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

6. Fair Values

There were no material changes in business environment and economic circumstances that affect fair values of the Group’s financial assets and financial liabilities during the reporting period.

(1) Management has determined the carrying amounts of financial assets and financial liabilities measured at amortized cost in the consolidated financial statements are reasonable approximations of fair values.

(2) Financial Instruments Measured at Cost

Details of financial instruments measured at cost that are measured at cost because their fair value cannot be reliably assessed as at December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017

Financial assets measured Non-listed equities \ 26,951 \ - at fair value through profit Equity investments

or loss and others 20,000 - Financial assets measured at fair value through other Non-listed equities comprehensive income 211,930 - 258,881 - AFS financial assets Non-listed equities - 3,224,725 Equity investments

and others - 20,000 - 3,244,725 \ 258,881 \ 3,244,725

(3) Fair Value Hierarchy

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

 Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).  All inputs other than quoted prices included in level 1 that are observable (either directly that is, prices, or indirectly that is, derived from prices) for the asset or liability (Level 2).  Unobservable inputs for the asset or liability (Level 3).

Fair value hierarchy classifications of the financial instruments that are measured at fair value or whose fair values are disclosed as at December 31, 2018 and 2017, are as follows:

36 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(In thousands of Korean won) 2018

Level 1 Level 2 Level 3 Total

Assets Financial assets measured at fair value through profit or loss \ - \ - \ 6,878,196 \ 6,878,196 Financial assets measured at fair value through other comprehensive income 2,239,727 1,350,000 27,305,204 30,894,931 Derivative financial instruments - 2,760,275 - 2,760,275 Liabilities Derivative financial instruments - 34,934,116 - 34,934,116

(In thousands of Korean won) 2017

Level 1 Level 2 Level 3 Total

Assets Financial assets AFS \ 2,916,177 \ 1,150,000 \ 28,630,996 \ 32,697,173 Derivative financial instruments - 10,298,790 - 10,298,790 Liabilities Derivative financial instruments - 6,526,354 - 6,526,354

There have been no significant changes in Level 1 and Level 2 for the year ended December 31, 2018.

(4) Changes in the Financial Instruments on Level 3

The changes in the financial instruments of Level 3 for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017 Financial assets measured at fair Financial assets value through measured at fair other value through comprehensive Financial assets profit or loss income AFS

Balance as at January 1 \ 26,878,794 \ 24,857,308 \ 28,709,268 Profit or loss recognized as profit or loss (21,166,555) - - Profit or loss recognized as other comprehensive income - 2,447,897 (78,272) Changes due to exchange rate fluctuation and etc. 1,165,957 - - Balance as at December 31 \ 6,878,196 \ 27,305,205 \ 28,630,996

37 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

The fair value of Yong-in Clean Water Co., Ltd., Samsung Veolia, Dongbu Environment Co., Ltd., and Asan Smart Water, among the Group’s financial assets measured at fair value through other comprehensive income, are assessed by an independent appraiser using evaluation methodology and estimation considered reasonable. The Group considers the appraised value to be the reliable fair value of such financial instruments. The evaluation method used is the DCF method. In the estimation of expected future financial performance, the appraiser has taken numerous factors into consideration such as past financial performance or economic environment. In assessing the estimation period, the business structure of the appraised company is assumed to stay unchanged during the estimation period. Equity investments in Construction Guarantee and other association are evaluated using net asset approach.

(5) The Group recognizes events that cause movements between levels or movements between levels as circumstances change.

(6) Valuation Technique and the Inputs

Valuation techniques and inputs used in the recurring and non-recurring fair value measurements and disclosed fair values categorized within Level 2 and Level 3 of the fair value hierarchy as at December 31, 2018, are as follows:

(In thousands of Korean won) 2018 Range of inputs Valuation (weighted Fair value Level techniques Inputs average)

Financial assets measured at fair value through profit or loss Construction Net asset value Growth rate, discount rate Guarantee and 6,878,196 3 - approach and others others Financial assets measured at fair value through other comprehensive income Yong-in Clean Water Discounted cash 9.85~11.85 9,455,965 3 Discount rate before tax Co., Ltd. flow (10.85)% Discounted cash 12.13~14.13 Samsung Veolia 13,538,545 3 Discount rate before tax flow (13.13)% Dongbu Discounted cash 12.13~14.13 Environment Co., 3,315,090 3 Discount rate before tax flow (13.13)% Ltd. Discounted cash 7.33~9.33 Asan Smart Water 995,604 3 Discount rate before tax flow (8.33)% Shinwon C.C. 1,350,000 2 Market approach Quoted price - Derivative financial assets and liabilities Foreign currency Present value Foreign currency forward (32,140,880) 2 - forward technique exchange rate Present value Exchange rate, discount Currency Swap (32,961) 2 - technique rate and others

38 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(7) Valuation Processes for Fair Value Measurements Categorized Within Level 3

The Group’s finance team performs the fair value measurements required for financial reporting purposes, including Level 3 fair values. This team reports valuation processes and results at least once every year in line with the Group’s year-end reporting dates.

(8) Sensitivity analysis for Recurring Fair Value Measurements Categorized within Level 3

Sensitivity analysis of financial instruments is performed to measure favorable and unfavorable changes in the fair value of financial instruments that are affected by the unobservable parameters using a statistical technique. When the fair value is affected by more than two input parameters, the amounts represent the most favorable or most unfavorable. Level 3 financial instruments subject to the sensitivity analysis are equity securities whose changes in fair values are recognized as other comprehensive income.

The results of the sensitivity analysis for the effect on other comprehensive income from changes in inputs for the aforementioned equity securities are as follows:

(In thousands of Korean won) 2018 2017 Favorable Unfavorable Favorable Unfavorable changes changes changes changes

Financial assets: Financial assets measured at fair value through other comprehensive income(*1) \ 1,025,377 \ (927,554) \ - \ - AFS financial assets(*1) - - 1,089,078 (1,079,084)

(*1) Changes in their fair values are calculated by increasing or decreasing the discount rate before tax. Favorable changes reflect a 1% decrease in discount rate before tax, and unfavorable changes reflect a 1% increase in discount rate before tax.

(9) Reclassification of financial assets

There have been no reclassified financial assets due to changes in purpose or use for the year ended December 31, 2018.

39 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

7. Financial Instruments by Category

(1) Carrying amounts of financial assets and liabilities by category as at December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017

Financial assets at fair value through \ 6,925,147 \ - profit or loss Financial assets measured at fair value through other comprehensive 31,106,861 - income Financial assets at fair value through - 20,109,971 profit or loss Available-for-sale financial assets - 35,941,897 Held-to-maturity financial assets - 536,370 Financial assets at amortized cost Cash and cash equivalents 369,360,461 745,120,509 Short-term financial instruments 51,245,796 72,806,923 Trade receivables 1,383,112,329 1,311,634,318 Due from customers for contract 595,208,836 744,325,114 work Other receivables 110,790,274 81,618,872 Debt Security 619,065 - Others(*1) 192,256,364 233,579,330 Derivative instruments held for trading 803,696 - held for hedging 1,956,579 10,298,790 \ 2,743,385,408 \ 3,285,972,094

(*1) Accrued income, short-term loan receivables and guarantee deposits provided are included and financial assets consisted in other current and non-current assets are included.

40 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(In thousands of Korean won) 2018 2017

Financial liabilities measured at amortized cost Trade payables \ 502,477,317 \ 478,088,408 Other payables 321,354,441 291,254,493 Borrowings and other financial liabilities 477,544,447 1,243,885,964 Bonds 80,000,000 201,000,000 Guarantee deposits received(*1) 162,986,325 168,126,120 Accrued expenses 84,323,141 45,766,016 Derivative instruments held for trading 12,791,683 - held for hedging 22,142,432 6,526,354 \ 1,663,619,786 \ 2,434,647,355

(*1) Included in the consolidated statement of financial position as 'other current liabilities' and 'other non-current liabilities'.

(2) Among equity investments whose fair value are not reliably measured by the quoted market price, the fair value of an equity financial instruments is the same as the carrying amount, except those the fair value are reliably measured.

(3) Net gains or losses on each category of financial instruments for the years ended December 31, 2018 and 2017, are as follows:

(in thousands of Korean won) 2018 2017

Financial assets measured at fair value through other comprehensive income Gain (loss) on valuation (other comprehensive income) (*1) ￦ 1,971,446 ￦ - Dividend income 2,369,713 - Financial assets measured at fair value through profit or loss Gain (loss) on valuation (net income) (21,166,555) - Dividend income 132,870 -

Available-for-sale financial assets Gain (loss) on valuation (other comprehensive income) (*1) - (353,160) Dividend income - 5,362,565 Financial assets at amortized cost Interest income 11,332,817 8,207,503 Reversal of provision for impairment on (2,913,562) 8,189,710 receivables(Impairment loss on receivables) Impairment loss on other receivables (121,461) (42,961) Reversal of provision for impairment on other receivables 56,138 231,140 Loss on disposal of receivables (9,063,829) (13,301,980) Gain/loss on foreign currency transaction 3,077,165 (27,875,576)

41 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

Gain/loss on foreign currency translation 14,408,369 (43,410,420) Financial assets held-to-maturity Interest income - 10,422 Derivative instruments held for trading Gain/loss on valuation of derivative 48,549 - Derivative instruments held for hedging Gain/loss on valuation of derivative (4,702,175) (9,408,988) Gain/loss on transaction 249,392 10,683,122 Gain (loss) on valuation (other comprehensive income) (*1) (32,292,093) 34,637,610 Financial liabilities measured at amortized cost Interest expenses (41,761,082) (50,667,857) Gain/loss on foreign currency transaction (2,647,401) (9,898,151) Gain/loss on foreign currency translation (13,413,893) 34,029,488

(*1) Other comprehensive income does not reflect tax effect.

42 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

8. Transfer of Financial Assets

(1) Partially Transferred Financial Assets

Under factoring arrangement, the Group has sold trade receivables at a discount to KEB Hana Bank for the year ended December 31, 2018. The Group may retain an obligation to compensate a financial institution for debtors’ failure to make payment when they become due, an obligation known as a ‘recourse obligation’. Recourse obligations related to the sales of receivables with recourse are accounted for as collateralized borrowings (Note 20). The Group considers the held to collect business model to remain appropriate for these receivables and hence continues measuring them at amortized cost.

(In thousands of Korean won) Factored Trade Receivable’s 2018 2017

Book value of factored receivables \ 30,000,000 \ - Book value of financial liability recognized regarding the factoring agreement (30,000,000) -

(2) Fully Transferred Financial Assets

Trade receivables that were transferred to Samsung Card and four other financial institutions which are derecognized from the consolidated financial statements amount to ￦ 1,937,280 million for the year ended December 31, 2018 (2017: ￦ 2,465,498 million). In relation to the transactions, loss on disposal of ￦ 9,064 million (2017: ￦ 13,302 million) was recognized at the transfer date.

43 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

9. Contract assets and liabilities

(1) As stated in Note 2, the Group has applied Korean IFRS 1109 Financial Instruments on January 1, 2018, the date of initial application. Refer to Note 37 for the effect of changes in accounting policies on the financial statement and the classification of financial assets.

The following are the gross contract assets and liabilities recognized by the Group

(In thousands of Korean won) End of 2018 Beginning of 2018

Contract assets - Due from customers for contract work \ 595,208,836 \ 774,325,114 Contract liability – Due to customers for contract work 1,576,987,377 1,383,274,074

As at December 31, 2018, the amount of cost to fulfil a contract recognized by the Group as assets is \ 120,173 million (January 1, 2018: \ 36,233 million). In relation to the construction contract, the Group has recognized cost to fulfil a contract when those costs relate directly to a contract or to an anticipated contract, generate or enhance resources of the Company that will be used in satisfying performance obligations in the future, and are expected to be recovered.

(2) Material Changes in Contract Assets and Liabilities

As a result of the change in accounting policy, dues from customers and to customers for contract work in relation to revenue from contracts with customers are re-classified to contract assets and liabilities. For the year ended December 31, 2018, the contract assets and liabilities varied according to the recognition of revenue from construction contracts (refer to Note 26).

(3) The amount recognized as revenue for the fiscal year 2018 in relation to the contract liability for the contraction contract that was carried forward from the previous period is \ 1,178,315 million.

44 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(4) The trade receivables and other receivables as at December 31, 2018 and 2017, follows:

(In thousands of 2018 Korean won) Long-term Due from Short-term loan Short term Long term customers for Other Advanced loan receivables Guarantee Guarantee Trade receivables contract work receivables payments receivables (*1) Deposit (*1) Deposit

Receivables not past due \ 1,387,294,338 \ 595,208,836 \ 113,357,183 \ 169,666,338 \ 20,977,627 \ 16,162,129 \ 47,124,981 \ 119,582,214 Impaired receivables 9,687,510 619,170 169,372 421,359 1,534,663 - - - 1,396,981,848 595,828,006 113,526,555 170,087,696 22,512,290 16,162,129 47,124,981 119,582,214 Provision for impairment ''on receivables (13,869,519) (619,170) (2,736,281) (1,056,081) (1,534,663) - (10,401,816) - Present value of discount '''account - - - - (112,971) (2,399,144) - (310,046)

Total \ 1,383,112,329 \ 595,208,836 \ 110,790,274 \ 169,031,616 \ 20,864,656 \ 13,762,985 \ 36,723,165 \ 119,272,168

(*1) Short term Guarantee Deposit and Long-term loans are included in the consolidated statement of financial position as ‘other current assets' and ‘other non-current assets'.

(In thousands of Korean won) 2017 Long-term Due from Short-term loan

Trade customers for Other Advanced loan receivables receivables contract work receivables payments receivables (*1)

Receivables not past due \ 1,315,199,162 \ 774,325,114 \ 82,612,122 \ 118,308,049 \ 23,199,366 \ 19,410,047 Impaired receivables 60,937,243 374,818 186,532 421,358 1,470,565 - 1,376,136,405 774,699,932 82,798,654 118,729,407 24,669,931 19,410,047 Provision for impairment

on receivables (64,502,087) (374,818) (1,179,782) (1,000,952) (1,470,565) - Present value of discount

account - - - - (221,582) (1,468,381) Total \ 1,311,634,318 \ 774,325,114 \ 81,618,872 \ 117,728,455 \ 22,977,784 \ 17,941,666

(*1) Long-term loans are included in the consolidated statement of financial position as ‘other non- current assets'.

45 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(5) The aging analysis of trade and other receivables not past due as at December 31, 2018 and 2017, is as follows:

(In thousands of Korean won) 2018 Less than 1 1 year - 2 year More than 2 year over due overdue years overdue Total (*1)

Trade receivables \ 1,155,900,930 \ 56,726,675 \ 174,666,733 \ 1,387,294,338 Due from customers for contract work 426,384,139 41,400,168 127,424,529 595,208,836 Other receivables 35,879,231 50,389,819 27,088,133 113,357,183 Short-term loans(*2) 16,110,000 - 4,867,627 20,977,627 Long-term loans 206,110 56,764 15,899,255 16,162,129 Short-term guarantee deposit 31,531,568 3,143,724 12,449,689 47,124,981 Long-term guarantee deposit 18,111,400 12,265,826 89,204,988 119,582,214

(In thousands of Korean won) 2017 Less than 1 1 year - 2 year More than 2 year over due overdue years overdue Total (*1)

Trade receivables \ 1,112,193,711 \ 125,157,827 \ 77,847,624 \ 1,315,199,162 Due from customers for contract work 317,602,189 212,480,167 244,242,758 774,325,114 Other receivables 45,221,320 36,747,895 642,907 82,612,122 Short-term loans(*2) 19,200,000 - 3,999,366 23,199,366 Long-term loans 113,740 123,221 19,173,086 19,410,047

(*1) The age of trade and other receivables is analyzed based on the date when the receivables occurred.

(*2) Includes current portion of long-term loans.

46 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(6) Movements on the provision for impairment of trade receivables for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 Unused Provision for amounts Balance as at impaired reversed and Balance as at January 1 receivables Write off others December 31

Trade receivables \ 64,502,087 \ 1,076,404 \ (51,708,972) \ - \ 13,869,519 Due from customers for

contract work 374,818 244,352 - - 619,170 Other receivables 1,179,782 1,537,677 - 18,822 2,736,281 Advanced payments 1,000,952 55,129 - - 1,056,081 Guarantee deposit 29,549,995 1,224 (20,107,480) 958,076 10,401,815 Short-term loans 1,470,565 64,098 - - 1,534,663 \ 98,078,199 \ 2,978,884 \ (71,816,452) \ 976,898 \ 30,217,529

(In thousands of Korean won) 2017 Unused Provision for amounts Balance as at impaired reversed and Balance as at January 1 receivables Write off others December 31

Trade receivables \ 117,143,253 1,282,060 \ (50,079,360) \ (3,843,866) \ 64,502,087 Due from customers for

contract work 4,962,356 40,332 - (4,627,870) 374,818 Other receivables 1,472,880 1,126,446 (139,058) (1,280,486) 1,179,782 Advanced payments 1,415,507 86,789 - (501,344) 1,000,952 Short-term loans 1,628,979 42,961 - (201,375) 1,470,565 \ 126,622,975 2,578,588 \ (50,218,418) \ (10,454,941) \ 68,528,204

(7) The Group’s maximum exposure to credit risk as at December 31, 2018, is the carrying amount of trade and other receivables.

47 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

10. Financial Assets Measured at Fair Value

(1) Changes in financial assets measured at fair value for the year ended December 31, 2018, are as follows:

(In thousands of Korean won) Financial assets At fair value At fair value through other through profit or comprehensive loss income

Beginning balance \ 26,925,745 \ 29,126,123 Gain (loss) on valuation recognized in equity - 1,971,447 Gain (loss) on valuation recognized in profit or loss (21,166,555) - Changes due to exchange rate fluctuation and etc. 1,165,957 9,291 Ending balance \ 6,925,147 \ 31,106,861

(2) Financial assets measured at fair value as at December 31, 2018, are as follows

(In thousands of Korean won) 2018 Acquisition cost Fair value Book amount

Financial assets measured at fair value through profit or loss Equity instruments Non-listed equities \ 57,283,402 \ 26,951 \ 26,951 Investments in partnerships 5,026,663 6,898,196 6,898,196 \ 62,310,065 \ 6,925,147 \ 6,925,147 Financial assets measured at fair value through other comprehensive income Equity instruments Listed equities \ 161,830 \ 2,239,727 \ 2,239,727 Non-listed equities 22,138,369 28,867,134 28,867,134 22,300,199 31,106,861 31,106,861 \ 84,610,264 \ 38,032,008 \ 38,032,008

48 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

1) Listed equities

(In thousands of Korean won) 2018 Number of Ownership Acquisition shares owned (%) cost Fair value Book amount

Financial assets measured at fair value through other comprehensive income iMarket Korea Inc. 323,660 0.9 \ 161,830 \ 2,239,727 \ 2,239,727

2) Non-listed equities

(In thousands of Korean won) 2018 Number of Ownership Acquisition shares owned (%) cost Fair value Book amount

Financial assets measured at fair value through profit or loss POSCO Plantec 5,206,671 2.88 \ 56,752,714 \ - \ - Entech Enc. Co., Ltd. 51,000 9.61 294,218 26,847 26,847 Incheon United Football Club 2,000 0.01 5,000 104 104 Dongyang Engineering and Construction Corp. 205 0.01 231,470 - - \ 57,283,402 \ 26,951 \ 26,951 Financial assets measured at fair value through other comprehensive income Yong-in Clean Water Co., Ltd. 2,006,358 19.90 \ 10,031,789 \ 9,455,965 \ 9,455,965 Samsung Veolia 1,436,298 19.90 7,181,490 13,538,545 13,538,545 Dongbu Environment Co., Ltd. 392,040 19.80 1,960,200 3,315,090 3,315,090 Poonglim Industrial Co. Ltd. 3 0.01 56,936 - - Veolia Samsung Operating Co., Ltd. 1,990 19.90 9,950 9,950 9,950 Asan Smart Water 195,600 15.00 978,000 995,604 995,604 Lotte Advanced Materials (Thailand) Co., Ltd.(*1) 58,800 49.00 203,274 201,980 201,980 Shinwon C.C. 5 0.67 1,716,730 1,350,000 1,350,000 22,138,369 28,867,134 28,867,134 \ 79,421,771 \ 28,894,085 \ 28,894,085 (*1) The Group does not have significant influence over the Group as the voting rights are restricted by arrangements with other shareholders.

49 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

3) Investments in partnerships

(In thousands of Korean won) 2018 Number of Ownership Acquisition shares owned (%) cost Fair value Book amount

Financial assets measured at fair value through profit or loss Construction Guarantee 4,429 0.11 \ 4,828,994 \ 6,562,273 \ 6,562,273 Plant & Mechanical Contractors Financial Cooperative of Korea 74 0.01 67,192 70,985 70,985 Electronic Contractors’ Financial Cooperative 300 0.01 57,941 98,009 98,009 Information & Communication Financial Cooperative 100 0.01 20,967 37,932 37,932 Korea Electric Engineers Association 200 0.12 20,000 39,640 39,640 Engineering Financial Cooperative 113 0.01 11,568 69,357 69,357 Fire Guarantee, Seoul Division 40 0.02 20,000 20,000 20,000 \ 5,026,662 \ 6,898,196 \ 6,898,196

(3) Changes in financial assets measured at fair value through other comprehensive income for the year ended December 31, 2018, are as follows:

(In thousands of Korean won) 2018

Balance as at January 1 \ 5,182,074 Valuation 1,971,446 Deferred income tax (475,087) Balance as at December 31 \ 6,678,433

11. Financial Assets at Fair Value through Profit of Loss

Financial assets held for trading as at December 31, 2017, are as follows

(In thousands of Korean won) 2017

Derivative-linked securities \ 20,109,971

50 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

12. Available-for-sale Financial Assets

Changes in available-for-sale financial assets for the year ended December 31, 2017, are as follows:

(In thousands of Korean won) 2017

Beginning balance \ 36,300,093 Valuation (353,160) Changes due to exchange rate fluctuation. (5,036) Ending balance \ 35,941,897

Available-for-sale financial assets as at December 31, 2017, consist of the following:

(In thousands of Korean won) 2017 Acquisition cost Book amount

Listed equities \ 161,830 \ 2,916,177 Non-listed equities 79,421,771 26,236,897 Investments in partnerships 5,026,663 6,788,823 \ 84,610,265 \ 35,941,897

(1) Listed equities

(In thousands of Korean won) 2017 Number of Acquisition Book amount shares owned Ownership (%) cost (market value)

iMarket Korea Inc. 323,660 0.9 \ 161,830 \ 2,916,177

51 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(2) Non-listed equities

(In thousands of Korean won) 2017 Number of Acquisition shares owned Ownership (%) cost Book amount

Yong-in Clean Water Co., Ltd. 2,006,358 19.9 \ 10,031,789 \ 9,696,728 Samsung Veolia 1,436,298 19.9 7,181,490 12,165,444 Dongbu Environment Co., Ltd. 392,040 19.8 1,960,200 1,960,200 Entech Enc. Co., Ltd. 51,000 9.61 294,218 26,847 Poonglim Industrial Co. Ltd. 10,991 0.07 56,936 56,936 Veolia Samsung Operating Co.,

Ltd. 1,990 19.9 9,950 9,950 Incheon United Football Club 2,000 0.01 5,000 104 Asan Smart Water 195,600 15 978,000 978,000 Dongyang Engineering and

Construction Corp. 205 0.01 231,470 - POSCO Plantec 5,206,671 2.88 56,752,714 - Lotte Advanced Materials (Thailand) Co., Ltd.(*1) 58,800 49.00 203,274 192,688 (Membership Right) Shinwon C.C. 5 0.67 1,716,730 1,150,000 \ 79,421,771 \ 26,236,897 (*1) The Group does not have significant influence over the Group as the voting rights are restricted by arrangements with other shareholders.

(3) Investments in partnerships

(In thousands of Korean won) 2017 Number of Acquisition shares owned Ownership (%) cost Book amount

Construction Guarantee 4,429 0.11 \ 4,828,994 \ 6,459,829 Plant & Mechanical Contractors Financial Cooperative of Korea 74 0.01 67,192 70,471 Electronic Contractors’

Financial Cooperative 300 0.01 57,941 97,024 Information & Communication

Financial Cooperative 100 0.01 20,967 37,346 Korea Electric Engineers

Association 200 0.12 20,000 38,480 Engineering Financial

Cooperative 113 0.01 11,568 65,674 Fire Guarantee, Seoul Division 40 0.02 20,000 20,000 \ 5,026,663 6,788,823

52 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

13. Held-to-maturity Financial Assets

Held-to-maturity financial assets consist of government and public bonds. Details of held-to- maturity financial assets as at December 31, 2017, are as follows:

(In thousands of Korean won) Maturity 2017

Government and public bonds Within 1 year \ 66,990 More than 1 year 469,380 \ 536,370

14. Financial Assets at Amortized Cost

Details of financial assets at amortized cost as at December 31, 2018, are as follows:

(In thousands of Korean won) Maturity 2018

Government and public bonds Within 1 year \ 152,345 More than 1 year 466,720 \ 619,065

15. Investments in Associate and Joint Venture

Details of associates and joint venture of the Group as at December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017 Ownership Investee Region (%) Book amount Ownership (%) Book amount

Associates Muharraq STP Company Bahrain 4.57 \ 4,299,075 4.57 \ 3,218,728 B.S.C.(*1) Muharraq Holding Bahrain 45.00 36,411,735 45.00 26,841,837 Company 1 Limited Cheonan eco-energy Domestic 29.40 3,324,704 29.40 2,330,067 Joint Venture PSS Netherlands B.V. Netherlands 28.00 10,928 0.00 - TTSJV W.L.L. Bahrain 32.00 - 0.00 - \ 44,046,442 \ 32,390,632

(*1) Although the Group holds less than 20% of the equity shares of Muharraq STP Company B.S.C., the equity method was applied as the Group can exert influence through its seat in the investee’s Board of Directors.

53 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

Changes in investments in associates and joint venture for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 Muharraq Holding PSS Muharraq STP Company1 Cheonan Netherlands Company B.S.C. Limited eco-energy B.V. TTSJV W.L.L.

At January 1 \ 3,218,728 \ 26,841,837 \ 2,330,067 \ - - Acquisition - - - 10,928 4,849 Share of profit 389,393 3,572,022 994,637 - (4,849) Others 690,954 5,997,876 - - - At December 31 \ 4,299,075 \ 36,411,735 \ 3,324,704 \ 10,928 \ -

(In thousands of Korean won) 2017 Muharraq Muharraq STP Holding Offshore 1 Company Company1 Cheonan Consulting B.S.C. Limited eco-energy Corporation

At January 1 \ 3,123,881 \ 25,619,065 \ 1,719,693 \ 422,722 Share of profit 415,484 3,498,259 610,374 (1,762) Others (320,637) (2,275,487) - (44,976) Disposals - - - (375,984) At December 31 \ 3,218,728 \ 26,841,837 \ 2,330,067 \ -

54 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

The tables below provide summarized financial information for those associates and joint ventures that are material to the Group and received dividends from the associates and joint ventures.

1) Summarized financial position

(In thousands of Korean won) 2018 Muharraq Muharraq STP Holding PSS Company Company1 Cheonan Netherlands B.S.C. Limited eco-energy B.V. TTSJV W.L.L.

Current assets \ 23,311,730 \ 23,358,810 \ 18,238,295 \ 39,029 \ 342,767,735 Non-current assets 350,836,542 350,836,542 57,285,844 - - Current liabilities 4,785,111 4,785,111 5,542,142 - 345,409,415 Non-current liabilities 272,040,459 278,621,896 52,727,519 - 1,885,299 Net asset attributed to

controlling interest 97,322,702 80,914,966 17,254,478 39,029 (4,526,979) Non-controlling interest - 9,873,389 - - - Ownership percentage 4.57% 45.00% 29.40% 28.00% 32.00% Net assets of equity shares 4,443,025 36,411,735 5,072,810 10,928 (1,448,633) Unrealized gains and losses (143,950) - (1,748,106) - - Book amount of associates \ 4,299,075 \ 36,411,735 \ 3,324,704 \ 10,928 \ -

(In thousands of Korean won) 2017 Muharraq Muharraq STP Holding PSS Company Company1 Cheonan Netherlands B.S.C. Limited eco-energy B.V. TTSJV W.L.L.

Current assets \ 20,744,753 \ 20,792,835 \ 13,045,878 \ - \ - Non-current assets 347,291,903 347,291,903 62,161,235 - - Current liabilities 4,500,740 4,500,740 7,196,822 - - Non-current liabilities 290,185,702 296,494,098 53,632,808 - - Net asset attributed to

controlling interest 73,350,214 59,648,521 14,377,483 - - Non-controlling interest - 7,441,379 - - - Ownership percentage 4.57% 45.00% 29.40% 0.00% 0.00% Net assets of equity shares 3,348,621 26,841,837 4,226,975 - - Unrealized gains and losses (129,893) - (1,896,908) - - Book amount of associates \ 3,218,728 \ 26,841,837 \ 2,330,067 \ - \ -

55 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

2) Summarized financial performance

(In thousands of Korean won) 2018 Muharraq Muharraq STP Holding PSS Company Company1 Cheonan Netherlands B.S.C. Limited eco-energy B.V. TTSJV W.L.L.

Sales \ 31,988,282 \ 31,988,282 \ 27,477,494 \ - \ 310,210,847 Operating profit 23,383,522 23,383,522 7,467,282 - 12,391,660 Profit (loss) for the year 8,837,412 8,834,382 2,876,995 - (4,483,028) Other comprehensive income 15,135,076 14,864,063 - - (59,105) Total comprehensive income 23,972,488 23,698,455 2,876,995 - (4,542,133)

(In thousands of Korean won) 2017 Offshore 1 Muharraq Holding Consulting Muharraq STP Company1 Cheonan Corporation Company B.S.C. Limited eco-energy

Sales \ 33,610,793 \ 33,610,793 \ 26,358,175 \ - Operating profit 24,985,489 24,985,489 6,338,540 - Profit for the year 8,876,284 8,874,251 1,470,436 (3,583) Other comprehensive income (7,023,433) (5,508,827) - (89,851) Total comprehensive income 1,852,851 3,365,424 1,470,436 (93,434)

16. Investments in Interests in Joint Operations

Project name Country Percentage of ownership (%)

KNPC Clean Fuels Project Kuwait 50.00 (“CFP”) UAE Borouge-3 LDPE Project UAE 45.00 Duqm Refinery Project Pkg.2 Oman 49.49

Meanwhile, the Group involved in joint arrangements to complete constructions that are ordered by customers in Middle East area. The Group has its right on contract revenue and obligation on contract expenses to the extent of its participatory interests in the joint arrangements.

56 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

17. Investment Properties

Changes in investment properties for the year ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 Land Building Total

Beginning balance \ 82,218,871 \ 111,043,030 \ 193,261,901 Depreciation - (2,763,976) (2,763,976) Ending balance \ 82,218,871 \ 108,279,054 \ 190,497,925 Acquisitions costs \ 82,218,871 \ 129,557,492 \ 211,776,363 Accumulated depreciation - (21,278,438) (21,278,438)

(In thousands of Korean won) 2017 Land Building Total

Beginning balance \ - \ - \ - Reclassification(*) 82,218,871 111,507,645 193,726,516 Depreciation - (464,615) (464,615) Ending balance \ 82,218,871 \ 111,043,030 \ 193,261,901 Acquisitions costs \ 82,218,871 \ 129,557,492 \ 211,776,363 Accumulated depreciation - (18,514,462) (18,514,462)

(*) ￦ 193,727 million of land and building was reclassified from Property, Plant and Equipment to Investment properties in 2017.

The Group’s revenue and expense regarding the investment properties recognized in the statement of comprehensive income for the year ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017 Rental income \ 8,115,934 \ - Operating expense (4,331,537) (464,615) \ 3,784,397 \ (464,615)

The Group entered into an operating lease agreement with Samsung C&T for a part of the investment properties held by the Group. The future minimum lease payments expected to be received in relation to the above operating lease agreement for investment property as at December 31, 2018, are as follows:

(In thousands of Korean won) 2018 2017 Within one year \ 9,497,329 \ 9,403,296 Later than one year but not later than five years 29,065,635 38,562,964

57 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

18. Property, Plant and Equipment

Changes in property, plant and equipment for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of

Korean 2018 won) Furniture and Construction Leasehold Construction

Land Buildings Structures Machinery Vehicles fixtures equipment improvements in progress Total

Opening net

book amount \130,844,173 \ 234,246,171 \ 496,035 \ 24,454,035 \ 2,742,319 \ 15,181,562 \ 18,680,232 \ 120,057 \ - \426,764,584

Acquisition and

capital

expenditure - 2,452,877 - 10,316,719 475,475 1,917,655 - - 699,000 15,861,726

Disposals - (6,189,806) - (1,631,221) (239,860) (436,293) (7,705,372) - - (16,202,552)

Depreciation - (8,123,165) (36,639) (8,003,145) (1,854,942) (6,990,985) (4,063,859) (67,876) - (29,140,611)

Others(*1) - 294,177 112,494 25,874 147,103 55,609 - 635,257

Closing net book

amount \130,844,173 \ 222,680,254 \ 459,396 \ 25,248,882 \ 1,148,866 \ 9,819,042 \ 6,911,001 \ 107,790 \ 699,000 \ 397,918,404

Acquisition costs \130,844,173 \ 274,892,832 \ 745,429 \ 69,588,702 \ 12,975,005 \ 140,112,284 \ 27,390,703 \ 2,548,626 \ 699,000 \ 659,796,754

Accumulated

depreciation - (52,212,578) (286,033) (44,339,820) (11,826,139) (130,293,242) (20,479,702) (2,440,836) - (261,878,350)

(*1) Includes changes due to exchange rate fluctuation.

58 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(In thousands of Korean 2017 won) Furniture and Construction Leasehold Construction

Land Buildings Structures Machinery Vehicles fixtures equipment improvements in progress Total

Opening net book \ 346,97

amount \213,063,044 \ 356,945,720 \ 532,673 \ 25,178,929 \ 6,155,288 \ 26,034,240 \ 28,415,498 \ 140,885 4 \ 656,813,251

Acquisition and capital

expenditure - 741,353 - 9,972,539 460,062 2,625,266 - - - 13,799,220

Disposals - - - (1,358,246) (770,550) (1,164,451) (3,388,286) - - (6,681,533)

Depreciation - (11,060,825) (36,638) (8,666,670) (2,991,113) (11,709,595) (6,346,980) (55,058) - (40,866,879)

Exchange

differences(*1) (82,218,871) (111,507,645) ------(193,726,516)

Others(*2) - (872,432) - (672,517) (111,368) (603,898) - 34,230 (346,974) (2,572,959)

Closing net book \

amount \130,844,173 \ 234,246,171 \ 496,035 \ 24,454,035 \ 2,742,319 \ 15,181,562 \ 18,680,232 \ 120,057 - \ 426,764,584

Acquisition costs \130,844,173 \ 282,972,925 \ 745,429 \ 76,817,155 \ 17,462,055 \ 149,751,260 \ 56,572,250 \ 2,540,321 - \ 717,705,568

Accumulated

depreciation - (48,726,754) (249,394) (52,363,120) (14,719,736) (134,569,698) (37,892,018) (2,420,264) - (290,940,984)

(*1) For the year ended December 31, 2017, ￦ 193,727 million of land and building was reclassified to investment properties. (*2) Includes changes due to exchange rate fluctuation

The Group applied revaluation model to land which are classified to investment properties and property, plant and equipment. If the land is recognized as historical cost, the amount is as follows.

(In thousands of Korean won) 2018 At historical cost Book amount Fair value(*)

Investment properties \ 43,901,563 \ 82,218,871 \ 82,068,943 Property, plant and equipment 65,770,090 130,844,173 130,619,597 Total \ 109,671,653 \ 213,063,044 \ 212,688,540

(*) Land valuation was performed by an independent appraiser.

59 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

19. Intangible Assets

Changes in intangible assets for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 Membership Other Construction

rights intangible assets Software in progress Total

Beginning balance \ 8,532,907 \ 1,276,248 \ 61,076,135 \ 203,648 \ 71,088,938 Additions - - 8,359,672 3,734,204 12,093,876 Disposal - - (4) - (4) Amortization - (235,668) (28,193,541) - (28,429,209) Reclassification - - 203,648 (203,648) - Others(*) (2,960) 59,229 1,263 - 57,532 Ending balance \ 8,529,947 \ 1,099,809 \ 41,447,173 \ 3,734,204 \ 54,811,133

Acquisition costs \ 9,127,134 \ 2,359,968 \ 187,297,364 \ 3,734,204 \ 202,518,670 Accumulated

depreciation - (1,260,159) (145,850,191) - (147,110,350) Accumulated

impairment loss (597,187) - - (597,187)

(*) Includes changes due to exchange rate fluctuation.

(In thousands of Korean won) 2017 Membership Other Construction

rights intangible assets Software in progress Total

Beginning balance \ 10,611,675 \ 1,351,172 \ 83,756,149 \ - \ 95,718,996 Additions - 180,431 8,250,748 203,648 8,634,827 Disposal (2,029,352) - (22) - (2,029,374) Amortization - (221,412) (30,928,294) - (31,149,706) Impairment loss (41,727) - - - (41,727) Others(*) (7,689) (33,943) (2,446) - (44,078) Ending balance \ 8,532,907 \ 1,276,248 \ 61,076,135 \ 203,648 \ 71,088,938

Acquisition costs \ 9,130,094 \ 2,300,739 \ 179,037,448 \ 203,648 \ 190,671,929 Accumulated

depreciation - (1,024,491) (117,961,313) - (118,985,804) Accumulated

impairment loss (597,187) - - - (597,187)

(*) Includes changes due to exchange rate fluctuation.

60 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

20. Borrowings

Details of carrying amount of borrowings as at December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) Annual interest rate (%) as at Latest December 31, Category Creditor maturity date 2018 2018 2017 Short-term borrowings Libor(3M)+0.65 General loan Citi Bank and others 2019-12-14 \ 195,101,447 \ 479,073,963 ~Libor(3M)+1.85 General loan Nova Scotia - - - 53,570,000 Short-term loan General loan Woori Bank 2019-03-20 interest 23,700,000 39,700,000 rate+1.81 Korea Development General loan - - - 55,000,000 Bank General loan KEB Hana Bank(*1) 2019-09-06 Libor(3M)+1.98 33,543,000 32,142,000 China Construction General loan - - - 21,000,000 Bank Structural Korea EXIM Bank - - - 48,000,000 finance KB Securities Co.,Ltd. General loan 2019-02-21 CD(3M)+2.34 86,000,000 110,400,000 (*2), (*3) Kookmin Bank and General loan 2019-01-21 CD(3M)+2.34 70,200,000 90,000,000 others(*2), (*3) Collateralized KEB Hana Bank(*4) 2019-03-19 3.89 30,000,000 - borrowings \ 408,544,447 \ 928,885,963 Current portion of long-term borrowings General loan Kookmin Bank - - \ - \ 20,000,000 General loan NH Nong Hyup - - - 25,000,000 General loan Shinhan Bank - - - 50,000,000 IBK Capital and General loan - - - 21,000,000 others General loan IBK Capital(*2), (*3) 2019-11-20 4.00 15,600,000 4,400,000 Bank of China and CD(3M)+2.34 General loan 2019-11-20 23,400,000 6,600,000 others(*2), (*3) ~4.00 \ 39,000,000 \ 127,000,000 Long-term borrowings General loan Kookmin Bank - - \ - \ 20,000,000 General loan Shinhan Bank - - - 50,000,000

61 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

IBK Capital and General loan - - - 79,000,000 others General loan IBK Capital(*2), (*3) - - - 15,600,000 Bank of China and General loan - - - 23,400,000 others(*2), (*3) \ - \ 188,000,000

(*1) The Group has entered into an currency swap agreement for short-term borrowings of floating rate with KEB Hana Bank as at December 31, 2018. (*2) A valid credit rating below BBB0 or short-term credit rating below A30 could trigger an event of default. (*3) Those are kinds of ABS the Group redeems by trusting trade receivables including billed due from customers from expected construction contracts. As of December 31, 2018, details on those borrowings are stated below:

Related receivables Period of trust

CES First Co., Ltd billed due from customers 2017-11-21 ~ 2019-11-20 CES Second Co., Ltd billed due from customers 2017-11-30 ~ 2019-11-20

(*4) As at December 31, 2018, The Group has entered into an agreement with KEB Hana Bank allowing the Group’s venders to factor the account receivables from the Group on the Group’s credit line of ￦ 30,000 million. (refer to Note 8)

As at December 31, 2018 and 2017, bonds issued by the Group are as follows:

(In thousands of Korean won) Annual interest Latest maturity rate (%) as at Category date December 31, 2018 2018 2017

Private, non-guaranteed - - \ - \ 40,000,000 bonds (14-1th) Private, non-guaranteed 2019-05-29 4.30% 10,000,000 10,000,000 bonds (14-2th) Private, non-guaranteed 2019-11-29 4.50% 10,000,000 10,000,000 bonds (14-3th) Private, non-guaranteed - - - 81,000,000 bonds (15th) Private, non-guaranteed 2019-02-16 4.10% 20,000,000 20,000,000 bonds (16th) Private, non-guaranteed 2019-02-24 4.10% 20,000,000 20,000,000 bonds (17th) Private, non-guaranteed 2019-02-28 4.10% 20,000,000 20,000,000 bonds (18th)

62 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

Subtotal \ 80,000,000 \ 201,000,000 Bonds expiring within a year (80,000,000) (121,000,000) Total \ - \ 80,000,000

21. Post-Employment Benefit Plan

(1) Defined Contribution Plan

The Group operates defined contribution retirement pension. The employees may choose their benefit between defined contribution plan and defined benefit. Plan assets are operated in the form of funds independently from the Group’s other assets by the control of fiduciary. If an employee leaves the Group before meeting the qualification to obtain vested rights, his contribution benefit will be decreased due to the early retirement. This also leads to the decrease of contribution benefit payables to the employee by the same amount from the early retirement. The actual expenses on defined contribution retirement pension for the years ended December 31, 2018 and 2017, are \ 2,154,483 thousand and \ 2,291,545 thousand, respectively.

(2) Defined Benefit Plan

The Group operates defined benefit retirement pension for employees have rendered service entitling them to the contribution. The employees are entitled to the lump sum payment based on the total employment period applied by the final average pay of the terminal 3 months of the employment. The Group is exposed to investment risk, interest rate risk and wage risk due to the defined benefit plan. The latest actuarial remeasurement of the plan asset and defined liability is conducted by an independent actuary; and the present value of defined liability, current service cost and past service cost are measured using projected unit credit method (PUC method).

1) Details of net defined benefit liabilities recognized in the statements of financial position as at December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017

Present value of defined benefit liability \ 279,465,280 \ 253,664,818 Fair values of plan assets(*1) (229,491,553) (210,260,793) Net defined benefit liabilities \ 49,973,727 \ 43,404,025

(*1) The contributions to the National Pension Fund of \ 181 million are included in the fair value of plan assets as at December 31, 2018 (2017: \ 184 million).

63 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

2) Movements in the defined benefit obligations for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017

Beginning balance \ 253,664,818 \ 252,181,955 Current service cost 29,420,078 33,810,244 Interest expense 8,089,344 8,418,616 Remeasurements: Actuarial loss from change in demographic assumptions - 1,860,682 Actuarial loss from change in financial assumptions 13,933,916 2,425,760 Actuarial loss (gain) from experience adjustments 4,322,703 (2,494,208) Exchange differences 416,832 (315,967) Payments from plans: (29,136,724) (42,277,316) Transfer to associates (1,245,687) (944,948) Ending balance \ 279,465,280 \ 253,664,818

3) Movements in the fair value of plan assets for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017

Beginning balance \ 210,260,793 \ 199,777,919 Interest income 6,277,661 6,556,135 Remeasurements: Return on plan assets (excluding amounts included in interest income) (3,222,669) (4,153,835) Contributions: Employers 45,000,000 24,500,000 Payments from plans: (28,770,706) (16,419,426) Transfer to associates (53,526) - Ending balance \ 229,491,553 \ 210,260,793

4) Expected contributions to plan assets for the year ending December 31, 2019, are \ 32,982 million.

64 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

5) The remeasurements recognized in other comprehensive income for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017

Remeasurements before considering deferred income tax \ (21,479,288) \ (5,946,069) Tax effect 5,245,987 1,438,949 Remeasurements after considering deferred income tax \ (16,233,301) \ (4,507,120)

6) The significant actuarial assumptions as at December 31, 2018 and 2017, are as follows:

2018 2017

Discount rate 2.90% 3.40% Weighted-average salary growth rate 3.89% 3.63% (including inflation) Death rate Depending on age Depending on age Retirement rate Depending on age Depending on age Retirement age 55–65 55–65

7) Plan assets as at December 31, 2018 and 2017, consist of:

(In thousands of Korean won) 2018 2017

Quoted price Composition Quoted price Composition

Cash and cash equivalents \ 229,310,551 99.9 % \ 210,076,736 99.9 % Others 181,002 0.1 % 184,057 0.1 % \ 229,491,553 100.0 % \ 210,260,793 100.0 %

8) Actuarial gains from the plan assets as at December 31, 2018, and 2017, are as follows:

(In thousands of Korean won) 2018 2017

Actuarial gains from plan assets \ 3,412,435 \ 2,741,923

65 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

9) The sensitivity of the defined benefit obligations as at December 31, 2018 and 2017, due to changes in the principal assumptions is:

(in percentage) 2018 Impact on defined benefit obligation Changes in Increase in Decrease in assumption assumption assumption

Discount rate 1.00% 6.55% decrease 7.47% increase Salary growth rate 1.00% 7.61% increase 6.78% decrease

(in percentage) 2017 Impact on defined benefit obligation Changes in Increase in Decrease in assumption assumption assumption

Discount rate 1.00% 6.42% decrease 7.32% increase Salary growth rate 1.00% 7.21% increase 6.43% decrease

A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bondholding.

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The sensitivity of the defined benefit obligation to changes in principal actuarial assumptions is calculated using the projected unit credit method, the same method applied when calculating the defined benefit obligations recognized on the statement of financial position.

10) Expected maturity analysis of undiscounted pension benefits as of December 31, 2018 and December 21, 2017 are as follows:

(In thousands of Less than Between 1-2 Between 2-5 Between 5-10 Korean won) 1 year years years years

December 31, 2018 \ 31,276 \ 35,122 \ 96,715 \ 145,849 December 31, 2017 \ 32,781 \ 37,321 \ 94,159 \ 142,046

11) Weighted average duration of defined benefit obligations as at December 31, 2018 and 2017, are 7.01 years and 6.87 years, respectively.

66 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

22. Provisions

The changes in provisions for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 Provision for Provision for Provision construction construction for Provision for warranties losses restoration litigation

Balance as at January 1 \ 38,866,316 \ - \ 172,251 \ 5,924,659

Effect of changes in accounting policy - 84,648,893 - -

Increase 5,294,615 34,944,707 55,086 975,635

Decrease (3,205,041) (40,702,147) - (5,811,494)

Others (1,251,332) - 8,305 -

Balance as at December 31 39,704,558 78,891,453 235,642 1,088,800

Within 1 year 8,459,977 78,891,453 235,642 1,088,800

More than 1 year 31,244,581 - - -

(In thousands of Korean won) 2017

Provision for construction Provision for Provision for warranties restoration litigation

Balance as at January 1 \ 37,237,022 \ 176,772 \ 13,650,557

Increase 4,884,809 - 23,629

Decrease (742,349) - (7,749,527)

Others (2,513,166) (4,521) -

Balance as at December 31 38,866,316 172,251 5,924,659

Within 1 year 33,377,307 - 5,924,659

More than 1 year 5,489,009 172,251 -

Provisions are included in 'other current liabilities' and 'other non-current liabilities' as at the year ended December 31, 2018.

67 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

23. Share Capital and Share premium

In accordance with Article of Incorporation, the Company's the total number of authorized share is 300,000,000 shares and the total number of ordinary shares issued and share capital at the end of the reporting period are 196,000,000 shares and \ 980,000 million, respectively, with a par value of \ 5,000 per share after several capital increases.

SECL is authorized, subject to the Board of Directors’ approval, to retire treasury share in accordance with applicable laws up to the maximum amount of certain undistributed earnings.

However, SECL is authorized to issue cumulative participating preferred shares in a form of a non- voting registered share to the extent of 3,500,000 shares. The preferred dividend rate is decided by Board of Directors or a committee delegated by the Board when issued more than 1% of the face value.

In addition, SECL is authorized to issue to investors, other than current shareholders, convertible debentures and debentures with warrants with face values of up to \100 billion each. The convertible debentures amounting to \60 billion and \40 billion are assigned to ordinary share and preferred share, respectively. The debentures with warrants amounting to \60 billion and \40 billion are likewise assigned to ordinary shares and preferred share, respectively. As at December 31, 2018, there is no outstanding preferred share or debenture issued on these terms.

SECL is also authorized, subject to the Board of Directors’ approval, to issue ordinary or preferred shares to investors, other than current shareholders, for the exercise of stock option, general public subscription, urgent financing with financial institutions and strategic alliance up to 30% of number of shares authorized.

SECL has a stock option plan under which options to purchase shares of ordinary shares may be granted to key employees or directors who have contributed, or are expected to contribute, to the management and technological innovation of SECL. There are no stock options granted as of December 31, 2018.

68 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

24. Retained Earnings

(1) Legal Reserve

The Commercial Code of the Republic of Korea requires the Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of annual cash dividends declared, until the reserve equals 50% of its issued share capital. The reserve is not available for the payment of cash dividends, but may be transferred to share capital upon resolution by the Board of Directors or used to reduce accumulated deficit, if any, with the ratification of the shareholders.

(2) Reserve under the Special Tax Treatment Control Law

The Company appropriates certain portion of its retained earnings as a reserve for research and human resource development under the Special Tax Treatment Control Law. This reserve may be transferred to discretionary reserve and distributed as dividends.

Retained earnings as at December 31, 2018 and 2017, consists of the following:

(In thousands of Korean won) 2018 2017

Legal reserve \ - \ - Reserve for research and human resource development 657,703 2,277,302 Retained earnings 233,024,167 167,313,283 \ 233,681,870 \ 169,590,585

Changes in retained earnings for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017

Beginning balance \ 169,590,585 \ (197,770,929) Adjustments to beginning balance of retained earnings from adoption of Korean IFRS 1115 (5,929,176) - Adjustments to beginning balance of retained earnings from adoption of Korean IFRS 1109 1,335,718 - Profit (loss) for the year 68,684,743 (45,351,090) Disposition of loss on sale of treasury share - (61,021,283) Transfer of share premium - 473,753,257 Transfer of other capital surplus - (19,370) Ending balance \ 233,681,870 \ 169,590,585

69 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

25. Other Components of Equity

Other components of equity as at December 31, 2018 and 2017, consist of the following:

(In thousands of Korean won) 2018 2017

Other capital surplus \ (19,366,303) \ (19,366,303) Loss on sale of treasury share (131,862,753) (131,862,753) Gain on valuation of available-for-sale financial assets - 7,027,299 Loss on valuation of available-for-sale financial assets - (509,507) Gain on valuation of financial assets at fair value through other comprehensive income 6,678,433 - Share of other comprehensive income of associates and joint ventures 363,216 (6,325,613) Gain on valuation of derivatives 9,870,151 22,303,792 Loss on valuation of derivatives (22,086,954) (10,111,409) Exchange differences on translation of foreign operations (52,125,280) (50,621,209) Gain on revaluation 78,370,674 78,370,674 Remeasurements of net defined benefit liabilities (28,542,309) (12,309,008) Total \ (158,701,125) \ (123,404,037)

70 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

26. Engineering Contracts

(1) Engineering and construction contract balances and related revenues recognized for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017

Beginning balance \ 5,982,701,364 \ 8,391,171,858 Amendments 3,368,875,464 1,885,771,361 New contracts 6,046,499,798 2,663,465,050 Effect of changes in accounting standard (adoption of Korean IFRS 1115) 29,710,228 - Others(*1) - (1,421,479,616) Total 15,427,786,854 11,518,928,653 Construction revenue(*2) 5,479,801,109 5,536,227,289 Ending balance \ 9,947,985,745 \ 5,982,701,364

(*1) A construction contract with Balkhash Thermal Power Plant was terminated in April 2017 and the remaining contract amount has been deducted from the contract amount for the year ended December 31, 2017.

(*2) The amount of revenue includes \ 71,106 million (2017: \ 51,870 million) arising from design services and contract business management services.

The Group is responsible for contract performances and construction warranties related to the above contracts. The Group has also been provided with guarantees by Kookmin Bank and others with respect to the contracts. The Group recognized provisions for construction warranties representing estimated costs of future repairs, as well as provisions for construction losses for the estimated losses of construction contracts. Detailed information on provisions is provided in Note 22.

(2) Details of gross due from customers and gross due to customers as at December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017

Costs incurred to date \ 54,074,866,337 \ 52,314,809,437 Addition: Accumulated income 5,534,505,714 5,309,345,826 Deduction: Accumulated loss (3,854,704,749) (3,725,925,214) Total contract revenues (contract work in progress) incurred to date 55,754,667,302 53,898,230,049 Deduction: Progress billings (56,846,581,877) (54,507,179,009) Subtotal (1,091,914,575) (608,948,960) Amounts due from customers (*) 595,208,836 774,325,114

71 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

Amounts due to customers (*) (1,576,987,377) (1,244,686,880) Provision for construction warranties (31,244,581) (28,987,919) Provision for construction losses (78,891,453) (109,599,275) Subtotal \ (1,091,914,575) \ (608,948,960)

As at December 31, 2018, retentions held by customers for contract work amounted to ￦ 95,218 million (2017: ￦ 160,514 million) and advances received from customers for contract work amounted to ￦ 717,231 million (2017: ￦ 212,976 million).

(3) The contracts continued from December 31, 2017, those recognized revenue under stage of completion using the input method, that have impact from the changes in estimates of total contract revenue and costs, for the year ended December 2018 and succeeding year are as follows:

(In thousands of Korean won) 2018 Hydrocarbon Non-hydrocarbon

business business Total

Changes in total contract revenue \ 907,715,163 \ 2,475,866,152 \ 3,383,581,315 Changes in estimated costs to 949,172,000 2,139,638,608 3,088,810,608 complete Changes in estimated total contract (41,456,837) 336,227,544 294,770,707 revenue and costs Impact on profit or loss for the year (112,158,149) 260,178,161 148,020,012 Impact on profit or loss for 70,701,312 76,049,383 146,750,695 the succeeding year Changes in amounts due from 29,725,019 121,154,513 150,879,532 customers Changes in amounts due to 141,883,168 (139,023,648) 2,859,520 customers

72 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(4)The main contracts, recognizing revenue under stage of completion using the input method for the year ended December 31, 2018 whose contract revenue is more than 5% of revenue recognized for the year ended December 31, 2017, are as follows:

(In thousands of Amounts due Construction work Korean won) from customers account receivable Accumulated Contract Due Stage-of- Total impairment Total Allowance Area Name of contract date date(*1) completion amount Losses amount account Vietnam LSP Hydro 2018-06-27 2022-12-31 0.91% \ - \ - \ 2,140,804 \ 6,422 HDPE/PP Project Hydro YPFB Ammonia/Urea 2012-09-13 2019-04-30 97.18% - - 15,323,623 45,971 Hydro Lotte MEG-1 Project 2015-10-01 2019-04-30 96.56% - - - - RAPID PKG.11 Hydro 2015-12-03 2019-04-15 86.80% 28,136,430 - 3,708,661 11,126 EO/EG Hydro RAPID #6A LLDPE 2015-12-03 2019-04-15 90.97% 7,270,138 - - - Thailand PTTGC Hydro 2017-06-01 2020-11-30 32.11% 73,223 - 13,898,749 41,696 ORP Ethylene Thailand PTTGC Hydro 2017-08-28 2020-07-28 35.58% 1,858,255 - 19,382,890 58,149 Oxirane PO UNITED EOEG III Hydro 2018-01-03 2020-10-02 20.87% - - - - PJT Reclamation of land and appurtenant Non-Hydro 2000-08-29 2019-03-31 99.51% - - 8,044,308 24,133 work in metropolitan area #3 China Electronics Non-Hydro Semiconductor X2 2017-09-01 2021-03-31 67.04% 2,444,998 - 67,816,307 203,449 Project Samsung Electronic Non-Hydro HCMC CE Complex 2015-01-01 2018-12-31 99.20% - - - - Project SEVT Metal/3D Non-Hydro 2015-01-14 2019-04-30 92.52% 1,647,679 - - - Glass Project Tangjeong SDC new Non-Hydro plant construction 2017-06-01 2019-12-31 50.25% 30,255,057 - 78,705,000 236,115 project UAE ADNOC Hydro 2018-02-28 2022-08-27 3.46% - - 75,147,845 225,444 Refining CFP Oman Duqm Hydro Refinery Project 2018-06-03 2022-04-30 1.70% - - 30,169,801 90,509 Pkg.2 Takreer Carbon Black Hydro 2012-07-31 2019-05-31 96.50% 121,365,267 - 8,073,302 24,220 & Delayed Coker Luberef Yanbu Hydro 2010-10-20 2019-05-31 97.44% 43,775,334 - 48,570,923 145,713 Refinery Expantion Hydro KNPC CFP MAB#1 2014-04-13 2019-08-31 88.03% - - 1,098,596 3,296 PEMEX Hydro SALAMANCA ULSD 2016-01-04 2019-07-07 10.25% 1,508,968 - 25,322,951 75,969 Phase2 (*2) UAE ADNOC Hydro 2018-03-25 2023-06-24 3.68% - - 13,946,766 41,840 Refining WHRP SOCAR Ammonia Hydro 2014-02-18 2019-03-31 91.51% - - 4,959,723 14,879 and Urea Complex

73 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

S3 Line Construction Non-Hydro 2012-06-16 2019-11-30 97.08% - - 1,788,586 5,366 (Ph-1) Project P-PJT Construction Non-Hydro 2015-07-05 2019-12-31 94.57% - - 230,800,240 692,401 Work Non-Hydro Pyengtaek P2-PJT 2017-08-01 2019-12-31 58.09% 83,536,591 - 110,635,756 331,907 K-PJT Finishing Non-Hydro 2011-09-26 2019-06-30 99.52% - - 2,419,472 7,258 Work Gazprom Badra Hydro 2013-02-13 2019-03-31 98.60% - - - - Project Timimoun (TFD) Hydro 2014-04-01 2019-06-07 97.53% 25,980,694 - 74,385,511 223,157 Project

(*1) It is contracted or expected construction period. For the construction work which has been passed its due date, negotiation to extend the construction period is being made or the construction work has been substantially completed and some residual work is in being performed. . (*2) Construction has been temporarily suspended upon request by the customer.

(5) The major joint-engineering projects as at December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 Contract amount of the Share of Total contract Group’s the Group amount share (%) Lead party

Reclamation of land and appurtenant \ 383,306,200 \ 295,145,774 77.00 The Company work in metropolitan area #3 Yongsan soil pollution cleaning 264,100,000 26,410,000 10.00 Samsung C&T Co. facility Asan public sewage and 130,979,001 111,404,801 85.06 The Company recycle facility Korea Water Dong-bu sewage treatment 67,772,000 33,208,280 49.00 Resources facility Corporation Construction for WorldCup Big 185,330,834 37,066,167 20.00 Samsung C&T Co. Bridge Okjeong sewage treatment 35,054,670 17,877,882 51.00 The Company facility construction Dongdaemun Design Plaza construction electrical 23,321,802 19,123,877 82.00 The Company engineering

74 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(In thousands of Korean won) 2017 Contract amount of the Share of Total contract Group’s the Group amount share (%) Lead party

Reclamation of land and appurtenant \ 379,966,486 292,574,194 77.00 The Company work in metropolitan area #3 Yongsan soil pollution cleaning 264,100,000 26,410,000 10.00 Samsung C&T Co. facility Asan public sewage and 129,481,090 110,056,681 85.00 The Company recycle facility Korea Water Dong-bu sewage treatment 67,772,000 33,208,280 49.00 Resources facility Corporation Construction for WorldCup Big 167,433,562 33,486,712 20.00 Samsung C&T Co. Bridge Okjeong sewage treatment 35,054,671 17,877,882 51.00 The Company facility construction Dongdaemun Design Plaza construction electrical 23,321,801 19,123,877 82.00 The Company engineering

(6) Details of the contracts of which the stage of completion is estimated as the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs as at December 31, 2018, are as follows:

(In thousands of Change in Change in estimated total Amounts due from Korean won) construction P/L construction cost customers Provision for Operating construction Changes in Corrections of Changes in Corrections Changes in Corrections of segments losses estimate errors estimate of errors estimate errors

Hydrocarbon business \ 45,143,743 \ (112,158,149) \ - \ 949,172,000 \ - \ 298,351,508 \ (619,170) Non-hydrocarbon business 33,747,710 260,178,161 - 2,139,638,608 - 297,476,498 -

Total \ 78,891,453 \ 148,020,012 \ - \ 3,088,810,608 \ - \ 595,828,006 \ (619,170)

(7) In relation to the joint construction in progress, the Group and other participating entities in the construction are providing performance guarantees

75 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

27. Expenses by Nature

Expenses by nature for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017

Materials and outsourcing cost \ 3,855,851,238 \ 4,036,747,373 Wages and salaries 641,938,619 674,380,804 Severance and retirement benefits 33,529,623 39,947,617 Welfare expense 107,226,567 152,544,413 Travel expenses 29,098,930 33,591,298 Rental expense 58,374,997 61,187,747 Depreciation 31,904,587 41,331,494 Amortization 28,429,209 31,149,706 Transportation expense 26,639,880 72,957,465 Commissions and fees 284,514,383 244,052,141 (Reversal of provision for) Impairment loss on receivables 2,913,562 (8,189,710) Reversal of provision for construction losses (6,293,666) (70,323,830) Other expenses 179,592,389 179,955,290 Total (*) \ 5,273,720,318 \ 5,489,331,808

(*) Total amounts consist of cost of sales and selling and administrative expenses in the consolidated statements of profit or loss.

76 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

28. Selling, General and Administrative Expenses

Selling, general and administrative expenses for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017

Wages and salaries \ 151,738,659 \ 150,810,936 Severance and retirement benefits 12,101,842 15,952,554 Welfare expense 27,670,068 22,666,168 Travel expenses 5,750,049 5,183,209 Communication expenses 6,122,171 8,627,048 Water, light and heating expenses 3,103,748 2,993,061 Taxes and dues 4,840,257 4,924,588 Rental expense 6,329,573 5,277,285 Depreciation 7,838,054 8,243,501 Amortization 27,778,303 30,019,614 Commissions and fees 45,396,208 32,378,055 Conference expenses 3,463,509 3,229,202 Training expenses 1,288,979 1,751,978 Outside processing expenses 16,476,875 13,001,498 Other expenses 2,271,833 625,390 (Reversal of provision for) Impairment loss on receivables 2,913,562 (8,189,710) Others 16,783,561 17,035,413 Total \ 341,867,251 \ 314,529,790

77 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

29. Other Income and Expense

Other income for the years ended December 31, 20186 and 2017, consists of:

(In thousands of Korean won) 2018 2017

Dividend income \ 2,502,583 \ 5,362,565 Commission income 7,781,026 9,259,127 Gain on disposal of property, plant and equipment 4,313,097 2,590,880 Gain on disposal of intangible - 10,299 Rent 5,219,326 1,386,152 Gain on foreign currency transactions 79,853,057 77,140,236 Gain on foreign currency translation 29,209,184 64,901,088 Gain on derivatives transactions 13,903,403 15,520,649 Gain on valuation of derivatives 7,433,562 240,078 Gain on valuation of firm commitment 18,545,333 5,158,248 Reversal of provision for impairment on other receivables 56,138 231,140 Reversal of provision for contingent loss 5,617,893 396,580 Gain on valuation of financial assets at fair value through profit or loss 109,372 - Miscellaneous gain 3,497,637 1,951,210 Total \ 178,041,611 \ 184,148,252

Other expenses for the years ended December 31, 2018 and 2017, consist of:

(In thousands of Korean won) 2018 2017

Commission expense \ 5,224,748 \ 11,800,287 Impairment loss on other receivables 121,461 42,961 Loss on disposal of trade receivable 9,063,829 13,301,980 Loss on disposal of property, plant and equipment 8,498,529 2,839,646 Loss on disposal of intangible assets 4 96,172 Impairment loss on intangible assets - 41,727 Donations 251,392 260,374 Loss on foreign currency transactions 71,481,723 97,866,469 Loss on foreign currency translation 27,912,486 73,235,064 Loss on derivatives transactions 13,654,011 4,837,526 Loss on valuation of derivatives 12,087,188 9,649,067 Loss on valuation of firm commitment 9,323,458 14,817,842 Contribution to provision for contingent loss 975,635 - Loss on valuation of financial assets at fair value through profit or loss 21,275,927 -

78 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

Miscellaneous loss 354,499 1,683,128

Total \ 180,224,890 \ 230,472,243

30. Income Tax

Income tax expense for the years ended December 31, 2018 and 2017, consists of the following:

(In thousands of Korean won) 2018 2017

Current taxes: Current tax on profits for the year \ 72,601,596 \ 43,348,591 Adjustments in respect of current years (15,130,859) 15,524,253 Total current tax 57,470,737 117,745,688 Deferred income tax due to temporary difference 29,291,277 (29,516,605) Items charged directly to equity(*) 13,218,208 (6,857,888) Adjustment for prior periods - - Income tax expense \ 99,980,222 \ 22,498,351

(*) The aggregate current and deferred tax relating to items that are charged or credited directly to equity for the years ended December 31, 2018 and 2017, is as follows:

(In thousands of Korean won) 2018 2017

Gain on valuation of available for sale financial assets \ - \ 85,465 Financial assets at fair value through other comprehensive income (475,087) - Gain (loss) on valuation of derivatives 7,792,907 (8,382,302) Gain on remeasurement of net defined benefit liabilities 5,245,987 1,438,949 Changes in accounting policyl 654,401 - Total \ 13,218,208 \ (6,857,888)

79 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(2) The following table reconciles the expected amount of income tax expense based on statutory rates to the actual amount of taxes recorded by the Group for the years ended December 31, 2018 and 2017:

(In thousands of Korean won) 2018 2017

Profit (loss) before income tax \ 170,176,658 \ (29,648,076) Expected taxes at statutory rate 73,501,583 24,064,833 Adjusted: Permanent difference (1,479,945) (1,038,103) Additional tax payment (7,285,946) 15,524,253 Effect of unrecognized deferred income tax on temporary differences 39,583,595 (5,975,785) Tax credit and other (4,339,065) (10,076,847) Income tax expense \ 99,980,222 \ 22,498,351 Effective tax rate 58.75% -

(3) The movements in deferred tax assets and liabilities for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 Beginning Increase Ending Balance (Decrease) Balance Taxable temporary differences (1) Reserve for technology development \ (159,164) \ 159,164 \ - Severance insurance deposits (50,838,570) (4,654,583) (55,493,153) Share of loss of associates (1,722,742) - (1,722,742) Depreciation expense (1,455,493) 367,664 (1,087,829) Gain on revaluation of land (25,020,717) - (25,020,717) Dividend Income (13,089,828) (3,589,156) (16,678,984) Other (16,652,394) (8,244,329) (24,896,723) Subtotal (108,938,908) (15,961,240) (124,900,148) Deductible temporary differences (2) Provision for severance and retirement benefits 60,767,284 6,296,488 67,063,772 Annual paid leave obligation 4,987,094 (308,817) 4,678,277 Provision for construction warranties 7,592,705 417,735 8,010,440 Provision for construction losses 21,484,741 (4,754,072) 16,730,669 Provisions for contingencies 1,436,082 (1,172,592) 263,490 Other 366,705,083 131,971,971 498,677,054 Subtotal 462,972,989 132,450,713 595,423,702

80 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

Total temporary differences 354,034,081 116,489,473 470,523,554 Donations carried forward 241,861 48,343 290,204 Deferred income tax due to tax credits 57,390,257 (3,512,627) 53,877,630 Deferred income tax due to tax losses 384,543,919 (142,316,466) 242,227,453 \ 796,210,118 \ (29,291,277) \ 766,918,841

(In thousands of Korean won) 2017 Beginning Increase Ending Balance (Decrease) Balance Taxable temporary differences (1) Reserve for technology development \ (551,107) \ 391,943 \ (159,164) Severance insurance deposits (48,298,747) (2,539,823) (50,838,570) Share of loss of associates (1,722,742) - (1,722,742) Depreciation expense (911,428) (544,065) (1,455,493) Gain on revaluation of land (25,020,717) - (25,020,717) Dividend Income (10,446,452) (2,643,376) (13,089,828) Other (13,083,438) (3,568,956) (16,652,394) Subtotal (100,034,631) (8,904,277) (108,938,908) Deductible temporary differences (2) Provision for severance and retirement benefits 55,554,007 5,213,277 60,767,284 Annual paid leave obligation 5,001,062 (13,968) 4,987,094 Provision for construction warranties 6,529,450 1,063,255 7,592,705 Provision for construction losses 53,778,581 (32,293,840) 21,484,741 Provisions for contingent loss 3,303,435 (1,867,353) 1,436,082 Other 280,449,931 86,255,152 366,705,083 Subtotal 404,616,466 58,356,523 462,972,989 Total temporary differences 304,581,835 49,452,246 354,034,081 Donations carried forward 186,706 55,155 241,861 Deferred income tax due to tax credits 58,941,434 (1,551,177) 57,390,257 Deferred income tax due to tax losses 402,983,538 (18,439,619) 384,543,919 \ 766,693,513 \ 29,516,605 \ 796,210,118

81 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(4) Details of deductible temporary differences not recognized as deferred tax assets as at (4) Details of deductible temporary differences not recognized as deferred tax assets as at December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017

Unused tax credits \ 144,914,425 \ 80,742,262

The Group has not recognized the unused tax credits as the deferred tax assets due are expected to fail to generate sufficient taxable income; the maturity of unused tax credit is as follows:

(In thousands of Korean won) 2018 2017

2021 \ 44,992,407 \ 44,992,407 2022 35,749,855 35,749,855 2023 64,172,163 -

31. Earnings (loss) per Share

Basic earnings (loss) per share for the years ended December 31, 2018 and 2017, is calculated as follows:

(In Korean won and number of shares) 2018 2017

Profit (loss) attributable to the ordinary equity holders of the Parent Company \ 68,684,742,777 \ (45,351,090,143) Weighted-average number of ordinary shares outstanding 196,000,000 196,000,000 Basic earnings (loss) per share \ 350 \ (231)

The Group did not issue any potential ordinary shares. Therefore, basic earnings per share is identical to diluted earnings per share.

82 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

32. Related-party Transactions

Details of associates and other related parties that have sales and other transactions with the Group or have outstanding balances as at December 31, 2018 and 2017, are as follows:

Name of entity(*1) Associates and Joint ventures Muharraq STP Company B.S.C Muharraq Holding Company 1 Limited Cheonan eco-energy TTSJV WLL(*2) PSS Netherlands B.V.(*2) Others(*3) Samsung Electronics Co., Ltd. Etc.

(*1) The Group provides construction performance and other guarantees for the related parties(Refer to Note 36). (*2) The Company is newly established during the year ended December 31, 2018. (*3) Although the entity is not the related party of the Group in accordance with Korean IFRS 1024, the entity belongs to the Large Enterprise Group to which the Group also belongs in accordance with the Monopoly Regulation and Fair Trade Act.

Sales and purchases with related parties for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 Sales and others Purchases and others Sales Others Purchases Others Associates and Joint ventures: Muharraq STP Company B.S.C. \ 13,888,340 \ - \ - \ - Cheonan eco-energy 11,514,225 - - - TTSJV WLL 26,463,947 5,688,043 - - Subtotal 51,866,512 5,688,043 - - Entities belongs to the Large Enterprise Group: Samsung Electronics Co., Ltd. 1,239,721,037 - 3,579,545 - Samsung Display Co., Ltd. 544,953,822 - 47,695 - Samsung Biologics Co., Ltd. 78,967,885 - - - Samsung SDI Co., Ltd. 236,445,423 - - - Samsung Electro-Mechanics Co., Ltd. 114,132,959 - 7,643 - SAMSUNG SDS CO., LTD. - - 39,743,162 - Samsung Card Co., Ltd. - 27,452 8,634,603 - Samsung Heavy Industry Co., Ltd. - - 1,651,071 -

83 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

S-1 CO., LTD. - - 14,855,418 - SUMaterials Co., Ltd. 1,175,895 - - - Others 20,373 17,186,440 20,539,771 - Subtotal 2,215,417,394 17,213,892 89,058,908 - Total \ 2,267,283,906 \ 22,901,935 \ 89,058,908 \ -

(In thousands of Korean won) 2017 Sales and others Purchases and others Sales Others Purchases Others Associates and Joint ventures: Muharraq STP Company B.S.C. \ 8,545,161 \ - \ - \ - Cheonan eco-energy 12,742,449 - - - Subtotal 21,287,610 - - - Entities belongs to the Large Enterprise Group: Samsung Electronics Co., Ltd. 1,183,448,460 - 8,734,287 - Samsung Display Co., Ltd. 1,065,941,638 - 110,489 - Samsung Biologics Co., Ltd. 307,821,774 - - - Samsung SDI Co., Ltd. 55,313,573 - - - Samsung Electro-Mechanics Co., Ltd. 53,542,539 - 7,868 - SAMSUNG SDS CO., LTD. - - 37,944,988 - Samsung Card Co., Ltd. - - 12,789,696 - S-1 CO., LTD. - - 12,717,187 - SUMaterials Co., Ltd. 4,649,480 - - - Samsung Heavy Industry Co., Ltd. 233,981 - 42,000 - Others 67,254 6,289,965 15,097,749 - Subtotal 2,671,018,699 6,289,965 87,444,264 - Total \ 2,692,306,309 \ 6,289,965 \ 87,444,264 \ -

84 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

Outstanding balances arising from sales/purchases of goods and services as at December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 Receivables Payables Due from Due to Trade customers for Long-term Trade customers for receivables contract work loans Others payables contract work Others Associates and Joint ventures: Muharraq STP Company B.S.C. \ 1,458,100 \ - \ - \ - \ - \ 235,416 \ - Muharraq Holding Company 1 Limited - - 18,254,766 - - - - TTSJV WLL - 26,463,947 - 5,688,043 - - - PSS Netherlands B.V. ------10,928 Subtotal 1,458,100 26,463,947 18,254,766 5,688,043 - 235,416 10,928 Entities belongs to the Large Enterprise Group: Samsung Electronics Co., Ltd. 428,191,229 83,668,680 - - 1,029,236 242,864,624 Samsung Display Co., Ltd. 84,770,326 35,300,119 - - 3,921 17,894,852 Samsung Biologics Co., Ltd. 75,343,455 367,000 - - - 6,171,331 Samsung SDI Co., Ltd. 91,574,560 11,703,524 - - - 4,273,229 Samsung Electro- Mechanics Co., Ltd. 5,245,401 13,089,621 - - 701 845,684 SAMSUNG SDS CO., LTD. - - - - 6,367,298 - Samsung C&T Corporation - - - 7,037,765 5,236,876 - 4,550,059 S-1 CO., LTD. - - - - 1,419,184 - - Samsung Card Co., Ltd.(*1) - - - 85,958 - - 640,416 SUMaterials Co., Ltd. 162,360 - - - - 1,092,225 - Seoul Lake Side Co.,Ltd. and others 123,134 - - 460,000 3,084,653 20,373 44,820 Subtotal 685,410,465 144,128,944 - 7,583,723 17,141,869 273,141,945 5,235,295 Total \ 686,868,565 \ 170,592,891 \ 18,254,766 \ 13,271,766 \ 17,141,869 \ 273,377,361 \ 5,246,223 (*1) The contract with Samsung Card CO., LTD concerning factoring of purchasing card receivables and trade receivables was terminated on September 30, 2018. In relation to purchasing card transactions, the Group has transferred purchasing card receivables amounting to \ 336,791 million which has been redeemed entirely for the year ended December 31, 2018 and there is no outstanding balance as at December 31, 2018. In relation to factoring of trade receivables, the Group has transferred trade receivables amounting to \ 1,629,070 million for the year ended December 31, 2018 and there is no balance that has not reached its maturity.

85 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(In thousands of Korean won) 2017 Receivables Payables Due from Due to Trade customers for Long-term Trade customers for receivables contract work loans Others payables contract work Others Associates and Joint ventures: Muharraq STP Company B.S.C. \ - \ - \ - \ - \ - \ 6,103,787 \ - Muharraq Holding Company 1 Limited - - 21,449,841 - - - - Subtotal - - 21,449,841 - - 6,103,787 - Entities belongs to the Large Enterprise Group: Samsung Electronics Co., Ltd. 410,762,779 31,354 - - 2,426,070 271,916,562 - Samsung Display Co., Ltd. 240,013,692 133,722,523 - - 25,154 219,016,688 - Samsung Biologics Co., Ltd. 16,759,196 35,747,696 - - - 600,980 - Samsung SDI Co., Ltd. - 30,028,045 - - - 3,961,826 - Samsung Electro- Mechanics Co., Ltd. 15,563,677 2,323,910 - - 701 2,368,089 - SAMSUNG SDS CO., LTD. - - - - 4,140,306 - - Samsung C&T Corporation - - - 6,897,834 830,432 - - S-1 CO., LTD. - - - - 906,849 - - Samsung Card Co., Ltd.(*1) ------610,006 SUMaterials Co., Ltd. 324,500 - - - - 1,797,520 - Seoul Lake Side Co.,Ltd. and others - - - 460,000 1,069,059 20,373 71,689 Subtotal 683,423,844 201,853,528 - 7,357,834 9,398,571 499,682,038 681,695 Total \ 683,423,844 \ 201,853,528 \ 21,449,841 \ 7,357,834 \ 9,398,571 \ 505,785,825 \ 681,695

(*1) The Group entered into a contract with Samsung Card CO., LTD concerning the purchasing card and receivables factoring. In relation to purchasing card transactions, the Group has transferred purchasing card receivables amounting to \ 596,477 million which has been redeemed entirely for the year ended December 31, 2018 and there is no outstanding balance as at December 31, 2018. In relation to factoring of trade receivables, the Group has transferred trade receivables amounting to \ 2,365,805 million for the year ended December 31, 2018 and the balance that has not reached its maturity amounts to \ 3,721 million.

86 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

Fund transactions with related parties for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 Contributions in cash Issuance of shares Associates and Joint ventures: Muharraq Holding Company 1 Limited \ - \ 3,312,983 TTSJV WLL 4,849 -

(In thousands of Korean won) 2017 Redemption of loans Associates and Joint ventures: Muharraq Holding Company 1 Limited \ 3,292,091

The Group is in contract with Samsung Life Insurance Co., Ltd regarding the defined benefit plan. The fair value of the plan as at December 31, 2018, amounts to \ 229,311 million (2017: \ 210,077 million); and interest income recognized amounts to \ 3,412 million for the year ended December 31, 2018 (2017: \ 2,742 million).

The compensation paid or payable to key management is as follows:

(In thousands of Korean won) 2018 2017

Short-term employee benefits \ 12,050,256 \ 13,875,017 Post-employment benefits 2,259,292 2,464,519 Total \ 14,309,548 \ 16,339,536

Details of payment guarantees and collateral provided by the Group for the related parties as December 31, 2018, are as follows:

2018 Guaranteed Credit Maturity entity Guaranteed by Guaranteed amount amount date

PSS Netherlands Thai Oil Public USD 499,479,134 August 31, B.V Company Limited EUR 161,131,684 - 2023 Payment guarantees THE BAHRAIN PETROLEUM April 25, TTSJV W.L.L. COMPANY (B.S.C.) USD 1,347,520,000 - 2022

87 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

33. Cash Generated from Operations

Cash flows from operating activities for the years ended December 31, 2018 and 2017, consist of the following:

(In thousands of Korean won) 2018 2017

Adjustments for: Depreciation expenses \ 31,904,587 \ 41,331,494 Amortization expenses 28,429,209 31,149,706 Post-employment benefits 31,231,760 35,672,725 Impairment loss on receivables 2,913,561 (8,189,710) Impairment loss on other receivables 121,461 42,961 Reversal of provision for impairment on other receivables (56,138) (231,140) Share of loss of associates (4,951,203) (4,522,355) Gain on disposal of investments in associates - (950) Loss on foreign currency translation 28,453,407 80,061,750 Loss on disposal of property, plant and equipment 8,498,529 2,839,646 Loss on disposal of intangible asset 4 96,172 Impairment loss on intangible asset - 41,727 Loss on disposal of trade receivable 9,063,829 13,301,980 Interest expense 41,761,082 50,667,857 Income tax expense 99,980,222 22,498,351 Loss on valuation of currency forwards 12,087,188 9,649,067 Loss on valuation of firm commitment 9,323,458 14,817,842 Contribution to provision for construction warranties 2,052,891 4,142,460 Reversal of provision for contingencies (4,642,258) (396,580) Loss on valuation of financial assets at fair value through profit or loss 21,275,927 - Gain on valuation of financial assets at fair value through profit or loss (109,372) - Gain on foreign currency translation (29,447,884) (70,680,818) Gain on disposal of property, plant and equipment (4,313,097) (2,590,880) Gain on disposal of intangible asset - (10,299) Interest income (11,332,817) (8,217,925) Dividend income (2,502,583) (5,362,565) Gain on valuation of currency forwards (7,433,562) (240,078) Gain on valuation of firm commitment (18,545,333) (5,158,248) Reversal of provision for construction losses (6,293,666) (70,323,830) Others 10,098,551 (6,731,754) \ 247,567,753 \ 123,656,606

88 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(In thousands of Korean won) 2018 2017

Changes in assets and liabilities: Increase in trade receivables \ (198,979,436) \ (439,753,658) Decrease in due from customers for contract work 135,848,229 591,038,348 Decrease (increase) in other receivables (13,975,168) 35,576,094 Decrease (increase) in other current assets 6,303,860 (68,924,158) Decrease (increase) in advances (52,144,558) 98,471,786 Increase in prepaid contract expenses (15,801,111) (11,815,089) Decrease (increase) in prepaid expenses (76,998,513) 23,105,826 Decrease in guarantee deposits provided 31,503,688 34,986,319 Increase in long-term prepaid expenses (223,446) (428,385) Increase in long-term other receivables (227,127) - Decrease (increase) in foreign currency forwards (5,995,934) 11,353,256 Decrease (increase) in firm commitment 9,200,934 (3,209,833) Increase (decrease) in trade payables and other payables 34,353,508 (431,304,743) Decrease in other non-current liabilities (21,484,327) (24,728,093) Increase in due to customers for contract work 421,592,786 167,687,595 Increase (decrease) in deposits received (14,879,081) 90,456,404 Increase in accrued expenses 43,371,179 315,208 Decrease in provisions (1,126,457) (106,383,043) Decrease in net defined benefit liabilities (46,558,178) (50,303,591) \ 233,780,848 \ (83,859,757)

89 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

Significant transactions not affecting cash flows for the years ended December 31, 2018 and 2017, are as follows: (In thousands of Korean won) 2018 2017

Changes in other receivable arising from disposal of property, plant and equipment 396,731 246,580 Changes in other payables arising from acquisition of property, plant, and equipment 1,254,810 - Changes in other payables arising from acquisition of intangible assets 2,771,911 - Reclassification of long-term borrowings 119,000,000 198,000,000 Reclassification of current portion of long-term borrowings due to extension of maturity - 115,000,000 Reclassification of held-to-maturity financial assets - 59,895 Reclassification of provisions for construction warranties 4,070,588 564,811 Write off of trade receivables 51,708,972 50,079,360 Disposition of loss on sale of treasury share - 61,021,284 Reclassification of property, plant and equipment to investment properties - 193,726,516

Changes in liabilities arising from financing activities

(In thousands of Korean won) Liability from financing activities

Current portion Currency swap Short-term of long-term Current portion Long-term Leasehold liability borrowing borrowing of bonds borrowing Bonds deposits (asset) Total \ At December 31, 2016 \ 720,770,652 \ 730,836,250 \ - \ - \ - \ 1,687,882 \ (14,646,300) 1,438,648,484

Cash flow 252,500,725 (565,836,250) - 150,000,000 201,000,000 - 397,200 38,061,675

Reclassification due to extension of the - (115,000,000) - 115,000,000 - - - maturity -

Reclassification to - 77,000,000 121,000,000 (77,000,000) (121,000,000) - - current portion -

Change in fair value ------19,478,150 19,478,150

Exchange differences (44,385,414) - - - - 77,502 - (44,307,912)

At December 31, 2017 928,885,963 127,000,000 121,000,000 188,000,000 80,000,000 1,765,384 5,229,050 1,451,880,397

Cash flow (456,142,124) (127,000,000) (121,000,000) (149,000,000) - 4,570,902 (601,550) (849,172,772)

Reclassification to current portion - 39,000,000 80,000,000 (39,000,000) (80,000,000) - - -

Change in fair value ------(4,594,539) (4,594,539)

Exchange differences (34,199,392) - - - - 12,349 - (34,187,043)

At December 31, 2018 \ 438,544,447 \ 39,000,000 \ 80,000,000 \ - \ - \ 6,348,635 \ 32,961 \ 563,926,043

90 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

34. Financial Risk Management

The Group’s financial risk management focuses on minimizing market risk, credit risk and liquidity risk arising from Group’s activities. The Group has a risk management program and policy in place to monitor and actively manage such risks.

Financial risk management is carried out by finance support division and the Group identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units.

Moreover, staff for financial management is dispatched to the specific area (Saudi, Malaysia, UAE and others) to manage global financial risk.

The Group’s financial assets that are under financial risk management are composed of cash and cash equivalents, short-term financial instruments, financial assets measured at fair value and trade and other receivables. The Group’s financial liabilities under financial risk management are composed of trade and other payables.

(1) Market risk

1) Foreign exchange risk

In order to minimize currency risk arising from sales activities, The Group controls the occurrence of foreign exchange transactions by trading in local currency at the time of current transactions such as imports and exports, or by managing the foreign currency deposits and expenditures to match through funds planning. In addition, The Group calculate the bid amount at the appropriate exchange rate reflecting the cashflow characteristics of each project, and conclude forward contracts for the equipment expected to be ordered when the project is ordered The Group’s foreign exchange management policy requires all normal business transactions such as deposits and borrowings to be in local currency or cash-in currency be matched up with cash- out currency.

The Group limits all speculative foreign exchange transactions and manages, evaluates and reports foreign exchange risk of each subsidiary.

The effect of foreign currency risk on pre-tax profit is a sum of net foreign currency fluctuations of Korean won against other foreign currency fluctuations. Foreign currency exposure to financial assets and liabilities of a 5% currency rate change against the Korean won is presented below.

(In millions of Korean won) 2018 2017 Increase Decrease Increase Decrease

Foreign financial assets \ 57,025 \ (57,025) \ 67,042 \ (67,042) Foreign financial liabilities (32,344) 32,344 (47,984) 47,984 Net effect \ 24,681 \ (24,681) \ 19,058 \ (19,058)

91 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

2) Price risk

The Group’s investment portfolio for strategic objectives consists of investments in listed and non- listed securities. The market values for the Group’s equity investments (excluding equity-method investments) for the years ended December 31, 2018 and 2017, are \ 2,240 million and \ 2,916 million, respectively.

If there is a change in the market price of equity investments that are included in Level 1 by 1%, the amount of other comprehensive income (after considering deferred income tax) for the years ended December 31, 2018 and 2017, is \ 17 million and \ 22 million, respectively.

3) Interest rate risk

Interest rate risk is defined as the risk that the fair value of a financial instrument or future cash flows of interest revenue and expense will fluctuate because of changes in market interest rates. The Group is exposed to interest rate risk mainly arising from deposit and the Group’s policy includes interest risk management to minimize uncertainty caused by interest rate fluctuation and financial expenses.

In order to avoid interest rate risk, the Group maintains minimum external borrowing by facilitating cash-pooling systems on a regional and global basis. The Group manages exposed interest rate risk via periodic monitoring and handles risk factors on a timely basis.

At the reporting date, change in profit before income taxes expense as a result of 1% increase in interest rate is presented below.

(In millions of Korean won) 2018 2017

Increase in interest rate \ (1,690) \ (2,812) Decrease in interest rate 1,690 2,812

(2) Credit risk

Credit risk arises during the normal course of transactions and investing activities, where clients or other party fails to discharge an obligation. The Group monitors and sets the counterparty’s credit limit on a periodic basis based on the counterparty’s financial conditions, default history and other important factors. In order to avoid credit risk, the Group obtains letter of guarantee from banks that have great credit rating.

Credit risk arises from cash and cash equivalents, savings and derivative instrument transactions with financial institutions. To minimize such risk, the Group transacts only with banks that have strong international credit rating, and all new transactions with financial institutions with no prior transaction history are approved, managed and monitored by the Group’s business support division and the local financial center. The Group mainly engages in financial contracts without collateral, debt-to-equity ratio and redemption restrictions. The Group requires separate approval procedure for contracts with restrictions.

92 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

The Group is not exposed to credit risk by providing payment guarantees and performance guarantees as at December 31, 2018, and the Group’s maximum exposure to credit risk is the carrying amount of financial assets exposed other credit risks that have been excluded from the above disclosure.

(3) Liquidity risk

The Group’s business requires a lot of cost, and therefore, maintaining adequate liquidity is important. To maintain adequate liquidity, the Group manages liquidity risk forecasting fund receipts and disbursements and required cash amount.

The Group forecasts future cash flow periodically to manage liquidity risk in advance. Therefore, the Group makes finance plan to be prepared for the risk caused by lack of funds, and matches up spending plan with maturity of financial assets taking into consideration forecasting cash flow.

In addition, the Group has secured an overdraft limit to separately hedge against liquidity risk, and subsidiaries are also secured with borrowing limits through payment guarantees by the Group.

The following table below is an undiscounted cash flow analysis of financial liabilities and foreign currency forward that are presented in the consolidated statement of financial position according to their remaining contract maturity:

(In millions of Korean won) 2018 More than Less than 6 months~ 1 year~2 More than 6 months 1 year years 2 years Total

Financial liabilities measured

at amortized cost \ 1,323,012 \ 211,199 \ 99,406 \ 4,569 \ 1,638,186 Financial guarantees(*1) 87,579 - - 4,761,426 4,849,005 Derivative instruments (*2) 6,633 9,875 12,645 2,984 32,137 Total \ 1,417,224 \ 221,074 \ 112,051 \ 4,768,979 \ 6,519,328 (*1) The amount of above financing guarantee contract is the maximum contractual payment that the Group is obliged to pay if the principal debtor claims the whole amount of guarantees. (*2)The amounts of derivative instruments are presented at undiscounted net cash flow.

(In millions of Korean won) 2017 More than Less than 6 months~ 1 year~2 More than 6 months 1 year years 2 years Total

Financial liabilities measured

at amortized cost \ 1,459,609 \ 659,502 \ 458,933 \ 43,796 \ 2,621,840 Derivative instruments(*1) (5,268) 531 (1,595) - (6,332) Total \ 1,454,341 \ 660,033 \ 457,338 \ 43,796 \ 2,615,508

93 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(*1)The amounts of derivative instruments are presented at undiscounted net cash flow.

(4) Capital risk management

The object of capital management is to maintain sound capital structure. Consistent with others in the industry, the Group monitors capital on the basis of the debt-to-equity ratio. This ratio is calculated as debt divided by equity.

To achieve optimal capital structure, the Group may improve financial structure monitoring financial ratios, such as debt ratio or net borrowings ratio, each month. During the current year, the BBB+ credit rating, which is below previous credit rating BBB+, was received from NICE Investors Service Co., Ltd. and others

The debt-to-equity ratios at December 31, 2018 and 2017, are as follows:

(In millions of Korean won and %) 2018 2017

Total debts \ 3,594,743 \ 4,079,160 Total equity 1,033,770 1,004,665 Debt-to-equity ratio 347.73% 406.02%

94 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

35. Segment Information

The Group has two reportable operating segments. General information on segments of the Group as at December 31, 2018, is as follows:

Line Classification criteria Products Major Customers Oil refinery, Saudi Arabian Oil Company, Hydrocarbon Purpose of Petrochemical, Gas, SONATRACH Spa, business management Upstream, Steel and Abu Dhabi Oil Refining others Company and others Samsung Electronics Co., Ltd., Non-hydrocarbon Industrial plants and Samsung Display, 〃 business others Saudi Arabian Oil Company and others

Financial information by segments as at and for the years ended December 31, 2018 and 2017, is as follows:

(In millions of Korean won) 2018 Hydrocarbon Non-hydrocarbon

business business Total

Sales \ 2,164,826 \ 3,314,975 \ 5,479,801 Gross profit (loss) 132,793 415,155 547,948 Depreciation 18,852 13,053 31,905 Amortization 11,694 16,735 28,429 Operating profit (loss) (57,713) 263,794 206,081 Total assets 2,734,892 1,893,621 4,628,513

(In millions of Korean won) 2017 Hydrocarbon Non-hydrocarbon

business business Total

Sales \ 2,106,189 3,430,038 5,536,227 Gross profit (loss) (265,948) 627,373 361,425 Depreciation 30,983 10,348 41,331 Amortization 21,333 9,817 31,150 Operating profit (loss) (374,774) 421,669 46,895 Total assets 3,810,992 1,272,832 5,083,824

95 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

General information by geographical area

Geographical area Products Major customers Oil refinery, petrochemical, Samsung Electronics Co., Ltd., Samsung Domestic industrial facilities, water Display Co., Ltd., Samsung Electro- treatment and others mechanics Co., Ltd. and others Oil refinery, petrochemical, YPFB, Lotte chemical USA, InterGen, PEMEX America electricity generation and others and others Oil refinery, petrochemical, PRPC Polymers son. Bhd, PTT GLOBAL Asia industrial facilities, and others CHEMICAL and others Oil refinery, industrial facilities SONATRACH Spa, SOCAR, Nexen tire and Europe and Africa and others others Saudi Arabian Oil Company, Abu Dhabi Oil Oil refinery, Gas, petrochemical, Refining Company, Jubail United Middle east and Other electricity generation, steel and Petrochemical Company, Duqm others refinery&Perochemical and others ` The sales by geographical area for the years ended December 31, 2018 and 2017, are as follows:

(In millions of Korean won) 2018 2017

Domestic \ 2,321,088 \ 2,848,183 America 187,138 289,586 Asia 1,559,366 875,105 Europe and Africa 520,254 462,055 Middle east and others 891,955 1,061,298

Total \ 5,479,801 \ 5,536,227

The major customers who account for more than 10% of the sales for the years ended December 31, 2018 and 2017, are as follows:

(In millions of Korean won) 2018 Sales Percentage Line of business

Major customers-1 \ 1,239,721 22.62% Non-hydrocarbon business Major customers-2 \ 549,374 10.03% Non-hydrocarbon business

(In millions of Korean won) 2017 Sales Percentage Line of business

Major customers-1 \ 1,389,358 25.10% Non-hydrocarbon business Major customers-2 \ 1,098,575 19.84% Non-hydrocarbon business

96 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

36. Commitments and Contingencies

(1) Other Commitments and contingencies as at December 31, 2018

1) The Group has entered into comprehensive limit contracts with Kookmin Bank and the other, with a limit of USD 139 million. 2) The Group has general term loan agreements with Woori Bank and two other banks, with a limit of \ 240,000 million and USD 30 million. 3) The Group has bank overdraft facilities with KEB hana Bank and two others, with a limit of \ 6,000 million. 4) The Group has agreements for trade receivables secured loans with Shinhan Bank and three others, with a limit of \ 47,000 million. 5) The Group has agreement in relation to issuance of letter of credit limit with Shinhan Bank and the other with an aggregate credit limit of USD 58.9 million. 6) The Group has entered into factoring agreement with KEB Hana Bank allowing the Group to sell its trade receivables at a discount with limit of \ 30,000 million. 7) The Group has entered into credit ceiling agreements with CITI Bank and ten other financial institutions related to borrowings of Samsung Saudi Arabia and seven other subsidiaries of USD 504,200,748, SAR 1,623,240,222, MYR 51,000,000, INR 240,000,000, THB 300,000,000 and CNY 100,000,000 .

(2) The Group has entered into foreign currency forward contracts to hedge the exposure to fluctuations in foreign exchange rates with Woori Bank and nine other banks. Details of foreign currency forwards outstanding as at December 31, 2018, which were entered into with banks, are as follows:

(In various currencies) Selling Buying Bank Currency Amount Currency Amount Forward rate

Deutsche Bank USD 50,638,643 EUR 41,553,990 1.2048~1.2944 USD 6,653,222 JPY 706,481,300 103.81~112.96

Nova Scotia EUR 7,629,126 CZK 196,848,045 25.7990~25.9600 KRW 3,770,529,899 EUR 2,919,112 1286.73~1296.20 USD 101,341,299 EUR 85,725,133 1.1420~1.2880 USD 34,873,360 GBP 25,965,000 1.2780~1.3561 USD 585,706 JPY 65,000,000 110.17~111.02 USD 29,468,522 KRW 31,072,590,857 1037.70~1125.00 USD 4,830,652 SGD 6,619,600 1.3683~1.3720 KRW 48,597,312,768 USD 43,771,489 1106.80~1118.50

Standard Chartered

Bank EUR 9,070,789 CZK 238,789,247 25.9125~26.5900 KRW 106,756,297,040 USD 98,303,321 1052.70~1112.00 THB 10,657,152 EUR 264,000 40.368

97 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

USD 188,826,508 EUR 152,224,842 1.1467~1.3382 USD 3,667,073 GBP 2,559,000 1.4189~1.468 USD 7,501,317 JPY 795,622,061 100.54~111.77 USD 20,846,152 KRW 22,011,301,882 1027.31~1068.21 USD 7,418,162 MYR 30,371,087 4.0611~4.1735

NH Bank KRW 1,485,013,160 EUR 1,156,111 1284.49 USD 78,409 EUR 64,008 1.225 USD 637,550 JPY 71,998,500 112.93 USD 18,797,771 KRW 20,938,487,192 1077.44~1131.20

Shinhan Bank USD 698,233 EUR 576,480 1.2112 USD 988,073 JPY 108,000,000 105.8~110.73 USD 128,087,977 KRW 138,303,467,014 1044.8~1125.00

Woori Bank USD 62,024,027 EUR 51,453,964 1.1489~1.2389 USD 9,701,260 JPY 1,054,479,000 105.33~111.75 USD 220,094,563 KRW 236,737,888,059 999.74~1132.25

Korea Development

Bank USD 262,002 CHF 240,000 0.8907~0.9630 USD 8,579,616 EUR 6,725,000 1.2113~1.3660 USD 24,129,649 JPY 2,453,598,000 100.39~101.94 USD 58,365,232 KRW 61,093,294,760 997.80~1074.84 USD 3,803,319 MYR 17,324,118 4.555

BNP Paribas USD 7,383,642 EUR 6,194,790 1.1448~1.2085 USD 6,581,805 JPY 701,028,000 106.51 USD 42,140,257 KRW 45,134,641,736 1047.80~1088.31

CITIBANK KOREA KRW 34,109,500,953 USD 30,624,705 1111.50~1116.50

SOCIETE GENERALE USD 13,061,260 EUR 11,082,562 1.1638~1.2412 USD 991,888 JPY 112,142,850 113.06

98 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

The Group has used the swap transactions for the purpose of avoiding exchange rate risk associated with foreign currency borrowings, and interest rate fluctuation risk associated with interest, and details related to the swap agreements are as follows:

(In thousands of Korean won and in USD) Currency Contract Buying Contract swap asset Banks date Start date End date Sell swap Buy swap rate interest rate (liability)

Payment: fixed - 3.30% KEB Hana 2018-09-06 2018-09-06 2019-09-06 KRW 33,564,000 USD 30,000,000 1,118.80 \ (32,961) Bank Received: floating - Libor + 1.98%

Gain or loss on of foreign currency forwards, interest rate swap, foreign currency swap and firm commitment for the years ended December 31, 2018 and 2017, is as follows:

(In thousands of 2018

Korean won) Trading Cash flow hedge Firm commitment

Accumulated Gain (loss) on Firm Asset (liability) other valuation of commitmentas regarding Gain on Loss on Gain on Loss on comprehens- firm sets derivatives valuation valuation valuation valuation ive income commitment (liabilities) contract

Foreign currency forwards \ 7,244,416 \ (7,195,867) \ 174,146 \ (4,891,321) \ (24,541,557) \ 9,221,875 \ 5,401,623 \ (32,140,880)

Interest rate swap - - - - 95,957 - - -

Foreign currency swap - - 15,000 - 36,413 - - (32,961)

\ 7,244,416 \ (7,195,867) \ 189,146 \ (4,891,321) \ (24,409,187) \ 9,221,875 \ 5,401,623 \ (32,173,841)

(In thousands of Korean won) 2017 Cash flow Fair value hedge hedge Firm commitment Gain and Accumulated loss on Firm Asset (liability) other valuation commitment regarding Gain on Loss on comprehens- of firm assets derivatives valuation valuation ive income commitment (liabilities) contract

Foreign currency forwards \ 240,078 \ (552,116) \ 25,972,770 \ (9,659,594) \ 5,380,682 \ 9,128,078 Interest rate swap - - 355,307 - - (126,592) Foreign currency

swap - (9,096,950) (72,768) - - (5,229,050) \ 240,078 \ (9,649,066) \ 26,255,309 \ (9,659,594) \ 5,380,682 \ 3,772,436

99 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

Gain or loss on valuation of foreign currency forwards for hedging purpose recognized in accumulated other comprehensive income for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 January 1, Reflected in December 31,

2018 profit and loss Valuation 2018 Foreign currency forwards: Gain (loss) on valuation of

derivatives for hedging purpose \ 16,210,548 \ (8,541,960) \ (23,834,764) \ (16,166,176) Effect of tax (3,849,439) 2,067,155 5,768,012 3,985,728 Allocated to accumulated other

comprehensive income 12,361,109 (6,474,805) (18,066,752) (12,180,448) Interest rate swap: Loss on valuation of derivatives

for hedging purpose (126,592) 126,592 - - Effect of tax 30,635 (30,635) - - Allocated to accumulated other

comprehensive income (95,957) 95,957 - - Foreign currency swap: Loss on valuation of derivatives

for hedging purpose (96,000) 96,000 (47,961) (47,961) Effect of tax 23,232 (23,232) 11,606 11,606 Allocated to accumulated other

comprehensive income (72,768) 72,768 (36,355) (36,355)

(In thousands of Korean won) 2017 January 1, Reflected in December 31,

2017 profit and loss Valuation 2017 Foreign currency forwards: Gain (loss) on valuation of

derivatives for hedging purpose \ (18,054,319) \ 6,179,861 \ 28,085,006 \ 16,210,548 Allocated to non-controlling 60,676 (60,676) - - Effect of tax 4,381,982 (1,434,850) (6,796,571) (3,849,439) Allocated to accumulated other

comprehensive income (13,611,661) 4,684,335 21,288,435 12,361,109 Interest rate swap: Loss on valuation of derivatives

for hedging purpose (595,335) 595,335 (126,592) (126,592) Effect of tax 144,071 (144,071) 30,635 30,635 Allocated to accumulated other

comprehensive income (451,264) 451,264 (95,957) (95,957) Foreign currency swap: Loss on valuation of derivatives

for hedging purpose - - (96,000) (96,000) Effect of tax - - 23,232 23,232 Allocated to accumulated other

comprehensive income - - (72,768) (72,768)

100 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In relation to derivative contracts held for cash flow hedging, the expected maximum period to be exposed to cash flow fluctuation risk is until October 19, 2022. Upon maturity, the expected amount of gain and loss on valuation of derivatives, to be transferred to profit or loss from accumulated other comprehensive income due to reasons such as maturity within 12 months from December 31, 2018, is ￦ 3,835,583 thousand. This amount is calculated with the consideration of deferred income tax charged on equity.

(3) Litigation As at December 31, 2018, the Group is involved in 28 lawsuits as a defendant related to compensation for damages amounting to ￦ 55.74 billion, and involved in 11 lawsuits as a plaintiff related to compensation for damages amounting to ￦ 44.94 billion. The final outcome and effect of this case cannot be determined as at the end of the reporting period. The Group is involved in seven arbitration cases other than above cases. Meanwhile, the Group recognized provisions amounting to ￦ 1.09 billion related to the litigation.

(4) As at December 31, 2018, the Group’s land and building amounting to ￦ 6,016,792 thousand have been provided as collateral for the leasehold deposits with KEB Hana Bank and others.

(5) As at December 31, 2018, Cheonan eco-energy securities amounting to ￦ 3,324,704 thousand of ‘Investments in Associate and Joint Venture’ and Asan Smart Water securities amounting to ￦ 995,604 thousand of ‘Financial assets measured at fair value through other comprehensive income’ have been provided as a collateral to NongHyup Bank and others for project financing.

(6) As at December 31, 2018, the Group has been provided with guarantees in the amounts of ￦ 2,582,314 million and ￦ 1,216,286 million in relation to the construction contract performance and warranties from the Export-Import Bank of Korea and advances received, reserves and refunds from UOB Bank, respectively. In addition, the Group has been provided with guarantees in the amount of ￦ 792,956 million in regard to the bids and others from Crédit Agricole Bank and others.

(7) Among financial assets measured at fair value through profit or loss, contributions to Construction Guarantee amounting to ￦ 6,768 million is provided as collateral for performance guarantee agreements offered by the Construction Guarantee.

(8) In relation to fulfilling construction contracts, the Group maintains insurance policies from SAMSUNG FIRE & MARINE INSURANCE CO.,LTD for the performance of its construction work for up to ￦ 2,650,313 million and its cargos for up to ￦ 3,787,258 million

(9) The Group provides construction performance and other guarantees to Petrofac International (UAE) LLC and four other companies with a limit of USD 1,750,804,667, EUR 416,373,480 and KRW 87,579,065,000 (Refer to Note 32).

101 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(10) Details of operating lease as at December 31, 2018 are as follows.

The Group leases various lands, buildings, vehicles under non-cancellable operating lease agreements. The lease terms are one year to three years. The lease payments recognized as expenses for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of Korean won) 2018 2017

Total lease payments \ 105,595,813 \ 135,350,548

Future minimum lease payments in relation to non-cancellable operating leases that are payable at the end of the reporting period are as follows:

(In thousands of Korean won) 2018 2017

Within one year \ 88,137,554 \ 113,383,496 Later than one year but not later than three years 15,869,703 18,971,945 Later than 3 year but not later than 5 years 9,129,044 8,737,535 Later than five years 12,244,160 7,729,361 \ 125,380,461 \ 148,822,337

102 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

37. Changes in Accounting Policies

37.1 Adoption of Korean IFRS 1109 Financial Instruments

As explained in Note 2, Group has applied Korean IFRS 1109 Financial Instruments on January 1, 2018, the date of initial application. In accordance with the transitional provisions in Korean IFRS 1109, comparative figures for prior reporting period have not been restated. The impacts of application of Korean IFRS 1109 on the financial statements are as follows.

(a) Classification and Measurement of Financial Instruments

On the date of initial application of Korean IFRS 1109, January 1, 2018, the Group’s management has assessed which business models apply to the financial assets held by the Group and has classified its financial instruments into the appropriate Korean IFRS 1109 categories. The main effects resulting from this reclassification are as follows:

Fair value through other Amortized cost comprehensive (Held-to-maturity Fair value income financial assets, through profit or (Available-for-sale loans and loss (Held for financial assets in receivables in (In thousands of Korean won) Notes trading in 2017) 2017) 2017) (*2) Total

Financial assets – January 1, 2018 Beginning balance – Korean IFRS 1039(*1) \ 20,109,971 \ 35,941,897 \ 3,219,621,435 \ 3,275,673,303 Reclassification from available-for-sale financial assets to financial assets at fair value through profit or loss (i) 6,815,775 (6,815,775) - - Beginning balance - Korean IFRS 1109(*1) \ 26,925,746 \ 29,126,122 \ 3,219,621,435 \ 3,275,673,303

(*1) The beginning balance as at January 1, 2018, presented available-for-sale financial assets at fair value through other comprehensive income, and loans and receivables at amortized cost, respectively.

(*2) Includes cash and cash equivalents.

103 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

The impact on these changes on the Group’s equity is as follows:

Effects on gain Effect on (loss) on fair accumulated value through other other Effect on comprehensive comprehensive retained (In thousands of Korean won) Notes income income earnings

Beginning balance – Korean IFRS 1039 \ 6,517,792 \ - \ 169,590,585 Reclassification of equity investments that are not held for trading from available-for- sale financial assets to financial assets at fair value through other comprehensive income (i) (5,182,074) 5,182,074 - Reclassification from available-for-sale financial assets to financial assets at fair value through profit or loss (ii) (1,335,718) - 1,335,718 Beginning balance - Korean IFRS 1109 \ - \ 5,182,074 \ 170,926,303

(i) Reclassification of equity investments from available-for-sale to fair value through other comprehensive income

The Group elected to present changes in the fair value of all its equity investments that are not held for trading previously classified as available-for-sale in other comprehensive income. As a result, assets with a fair value of \ 29,126 million were reclassified from available-for-sale financial assets to financial assets at fair value through other comprehensive income. As at January 1, 2018, related accumulated other comprehensive income of \ 5,182 million were not reclassified to profit or loss even though these assets are disposed of.

(ii) Reclassification from available-for-sale to fair value through profit or loss

As at January 1, 2018, investments in partnerships amounting to \ 6,816 million were reclassified from available-for-sale to financial assets at fair value through profit or loss. The investments do not meet the criteria to be classified as fair value through other comprehensive income in accordance with Korean IFRS 1109, because the financial assets are not equity securities. Related accumulated other comprehensive income \ 1,336 million were transferred to retained earnings on January 1, 2018.

(iii) Other financial assets

Equity securities held for trading and contingent consideration are all required to be held as fair value through profit or loss under Korean IFRS 1109. There was no impact on the amounts recognized in relation to these assets from the adoption of Korean IFRS 1109.

104 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(iv) Reclassifications of financial instruments on adoption of Korean IFRS 1109

On the date of initial application, January 1, 2018, the financial instruments of the Group with any reclassifications noted, were as follows:

(In thousands of Korean won) Measurement category Carrying amount Korean IFRS Korean IFRS Korean IFRS 1039 Korean IFRS 1109 1039 1109 Difference

Current financial assets Cash and cash equivalents Amortized costs Amortized costs \ 745,120,509 \ 745,120,509 - Short-term financial instruments Amortized costs Amortized costs 72,806,923 72,806,923 - Trade receivables Amortized costs Amortized costs 1,311,634,318 1,311,634,318 - Due from customers for contract Amortized costs Amortized costs work 774,325,114 774,325,114 - Other receivables Amortized costs Amortized costs 81,618,871 81,618,871 - Other current financial assets Amortized costs Amortized costs 25,658,130 25,658,130 - Fair value - Hedge Fair value - Hedge

accounting accounting 236,243 236,243 - Derivative instruments Cash flow - Hedge Cash flow - Hedge

accounting accounting 8,415,912 8,415,912 - Non-current financial assets Fair value through other Long-term available-for- comprehensive \ sale financial assets Equity instruments income(*1) 29,126,122 29,126,122 - Long-term available-for- Fair value through profit

sale financial assets or loss(*2) 6,815,775 6,815,775 - Fair value - Hedge Fair value - Hedge

accounting accounting 3,836 3,836 - Derivative instruments Cash flow - Hedge Cash flow - Hedge

accounting accounting 1,642,800 1,642,800 - Other non-current financial assets Amortized costs Amortized costs 207,921,200 207,921,200 - Current financial liabilities Fair value - Hedge Fair value - Hedge \ accounting accounting 461,744 461,744 - Derivative instruments Cash flow - Hedge Cash flow - Hedge

accounting accounting 6,013,167 6,013,167 - Non-current financial liabilities Cash flow - Hedge Cash flow - Hedge Derivative instruments accounting accounting 51,443 51,443 -

(* 1) Financial instruments measured at fair value through other comprehensive income: Investments in equity instruments and debt instruments

(* 2) Financial instruments measured at fair value through profit or loss

105 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(b) Impairment of Financial Assets

The Group has three types of financial assets subject to Korean IFRS 1109’s new expected credit loss model:

 trade receivables and due from customers for contract work for sales of construction services

 other financial assets carried at amortized cost

Upon adoption of Korean IFRS 1109, there is no impact of the beginning balance of retained earnings.

The Group applies the simplified approach to measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables and other financial assets carried at amortized cost.

The foreign exchange forward contract hedges and interest rate swaps in place as at December 31, 2017 qualified as cash flow hedges under Korean IFRS 1109. The Group’s risk management strategies and hedge documentation are aligned with the requirements of Korean IFRS 1109 and are thus treated as continuing hedges.

37.2 Adoption of Korean IFRS 1115 Revenue from Contracts with Customers

As explained in Note 2, the Group has applied Korean IFRS 1115 Revenue from contracts with customers from January 1, 2018. In accordance with the transitional provisions in Korean IFRS 1115, comparative figures have not been restated. The impacts of application of Korean IFRS 1109 on the financial statements are as follows.

The impact on the Group’s statements of financial position at the date of initial application (January 1, 2018) is as follows:

December 31, 2017 January 1, 2018 (In millions of Korean won) (before adjustments) Adjustments (after adjustments)

Due from customers for contract work \ 774,325 \ (29,710) \ 744,615 Prepaid construction expenses 19,296 (2,932) 16,364 Deferred tax assets 809,536 1,799 811,335 Total assets 5,083,825 (30,843) 5,052,982 Due to customers for contract work 1,383,274 (24,914) 1,358,360 Total liabilities 4,079,160 (24,914) 4,054,246 Retained earnings 169,591 (5,929) 163,662

Total equity \ 1,004,665 \ (5,929) \ 998,736

106 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

(*1) Accounting for combination of contract

With the implementation of Korean IFRS 1115, the Group meets certain requirements for two or more contracts entered into at or near the same time with the same customer (or related parties of the customer) and accounts for the contracts as a single contract. Accordingly, accounting for separate contracts is accounted for as a single contract in Korean IFRS 1115. To reflect this change in policy, due from customers for contract work and due to customers for contract work decreased each by \ 29,710 million and \ 24,914 million, respectively, resulting in a decrease of \ 4,796 million in beginning balance of retained earnings.

(*2) Accounting for costs to fulfil a contract

With the implementation of Korean IFRS 1115, the Group recognizes as an asset only those costs that are attributable to the incremental costs of obtaining a contract or costs to fulfil a contract. Accordingly, the Group recognized as an asset in the previous standard, but in Korean IFRS 1115, the Group recognizes as an expense when incurred. As at January 1, 2018, prepaid construction expenses and retained earnings decreased by \ 2,932 million.

Financial statement line items affected by the adoption of the new rules in the current period are as follows:

Statement of financial position

Amount before application of (In millions of Korean won) Reported amount Adjustments Korean IFRS 1115

Due from customers for contract work \ 595,209 \ (902) \ 594,307 Prepaid construction expenses 32,165 2,932 35,097 Deferred tax assets 790,388 (1,108) 789,280 Total assets 4,628,513 922 4,629,435 Due to customers for contract work 1,687,123 (2,842) 1,684,281 Total liabilities 3,594,743 (2,842) 3,591,901 Retained earnings 233,682 3,764 237,446 Total equity \ 1,033,770 \ 3,764 \ 1,037,534

107 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2018 and 2017

Statements of comprehensive income

Amount before application of (In millions of Korean won) Reported amount Adjustments Korean IFRS 1115

Sales \ 5,479,801 \ (30,612) \ 5,449,189 Cost of sales 4,931,853 (27,756) 4,904,097 Income tax expenses 99,980 (691) 99,289 Profit for the year 70,196 (2,165) 68,031 Total comprehensive income for the year 35,304 (2,165) 32,869

Statements of cash flows

Amount before application of (In millions of Korean won) Reported amount Adjustments Korean IFRS 1115

Profit for the year \ 70,196 \ (2,165) \ 68,031 Adjustments for: 247,568 (691) 246,877 Income tax expenses 99,980 (691) 99,289 Changes in operating assets and liabilities 233,781 2,856 236,637 Due from customers for contract work 135,848 30,612 166,460 Due to customers for contract work 421,593 (27,756) 393,837 Cash generated from operations 446,248 - 446,248

108