Hyundai Heavy Industries Co., Ltd. and Subsidiaries

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES

Condensed Consolidated Interim Financial Statements

June 30, 2018 and 2017

(Unaudited)

(With Independent Auditors’ Review Report Thereon)

Contents

Page

Independent Auditors’ Review Report 1

Condensed Consolidated Interim Statements of Financial Position 3

Condensed Consolidated Interim Statements of Comprehensive Income 5

Condensed Consolidated Interim Statements of Changes in Equity 7

Condensed Consolidated Interim Statements of Cash Flows 8

Notes to the Condensed Consolidated Interim Financial Statements 9

Independent Auditors’ Review Report

Based on a report originally issued in Korean

The Board of Directors and Shareholders Hyundai Heavy Industries Co., Ltd.:

Reviewed financial Statements

We have reviewed the accompanying condensed consolidated interim financial statements of Hyundai Heavy Industries Co., Ltd. and its subsidiaries (the “Group”), which comprise the condensed consolidated interim statement of financial position as of June 30, 2018, the condensed consolidated interim statements of comprehensive income for the three-month and six-month periods ended June 30, 2018 and 2017, the condensed consolidated interim statements of changes in equity and cash flows for the six-month periods ended June 30, 2018 and 2017 and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s responsibility

Management is responsible for the preparation and fair presentation of these condensed consolidated interim financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) No.1034 Interim Financial Reporting, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ review responsibility

Our responsibility is to issue a report on these condensed consolidated interim financial statements based on our reviews.

We conducted our reviews in accordance with Review Standards for Quarterly and Semiannual Financial Statements established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial information consists of making inquiries primarily of persons responsible for financial and accounting matters and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial statements referred to above are not prepared, in all material respects, in accordance with K-IFRS No.1034, ‘Interim Financial Reporting’.

Emphasis of Matters The following matters may be helpful to the readers in their understanding of the condensed consolidated interim financial statements:

Without qualifying our opinion, the condensed consolidated interim financial statements had been restated as described in Note 51, because the Group determined that it had no control over Hyundai Shell Base Oil Co., Ltd. The restated condensed consolidated interim financial statements include the condensed consolidated interim statement of comprehensive income for three-month and six-month periods ended June 30, 2017, the condensed consolidated Interim statement of changes in equity, and cash flows for the six-month periods ended June 30, 2017 and notes, comprising a summary of significant accounting policies and other explanatory information. The consolidated Interim net income for the period ended June 30, 2017 decreased by W10,149 million due to the above accounting error.

Other matters

The procedures and practices utilized in the Republic of Korea to review such condensed consolidated interim financial statements may differ from those generally accepted and applied in other countries.

The consolidated statement of financial position of the Group as of December 31, 2017, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, which are not accompanying this report, were audited by us in accordance with Korean Standards on Auditing, and our report thereon, dated July 10, 2018, expressed an unqualified opinion. The accompanying condensed consolidated statement of financial position of the Group as of December 31, 2017, presented for comparative purposes, is not different from that audited by us from which it was derived in all material respects.

Seoul, Korea August 14, 2018

This report is effective as of August 14, 2018, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying condensed consolidated interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that the above review report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Condensed Consolidated Interim Statements of Financial Position As of June 30, 2018 and December 31, 2017 (Unaudited)

(In thousands of won) Note 2018 2017

Assets Cash and cash equivalents 5,7,42,43 W 3,139,448,141 3,239,726,945 Short-term financial assets 6,7,18,26,42,43 957,822,940 401,318,869 Trade and other receivables 7,8,33,42,43,46 1,856,548,744 1,942,374,070 Contract assets 8,33,42 2,976,544,304 - Due from customers for contract work 8,42 - 3,357,947,345 Inventories 9,18,36 814,651,620 845,360,005 Derivative assets 26,42,43 15,644,671 140,891,609 Firm commitment assets 26 107,020,531 4,581,378 Current tax assets 5,709,731 19,960,616 Non-current assets held for sale 34,48,49 6,567,328,679 5,847,024,511 Other current assets 10 1,681,174,364 1,864,534,554 Total current assets 18,121,893,725 17,663,719,902

Investments in associates and joint ventures 11,12,46 393,500,095 142,287,116 Long-term financial assets 6,7,14,18,26,42,43 133,028,726 134,966,406 Long-term trade and other receivables 7,8,33,42,43,46 119,599,234 102,288,164 Investment property 15,34 136,921,554 233,864,145 Property, plant and equipment 16,18,34 10,657,393,246 11,046,256,085 Intangible assets 17,34 96,586,496 105,443,303 Derivative assets 26,42,43 14,900,072 28,335,542 Firm commitment assets 26 46,820,529 299,595 Deferred tax assets 1,050,143,521 903,758,043 Other non-current assets 10,24,44 34,445,860 47,629,206

Total non-current assets 12,683,339,333 12,745,127,605

Total assets W 30,805,233,058 30,408,847,507

See accompanying notes to the condensed consolidated interim financial statements. 3

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Condensed Consolidated Interim Statements of Financial Position, Continued As of June 30, 2018 and December 31, 2017 (Unaudited)

(In thousands of won) Note 2018 2017

Liabilities Short-term financial liabilities 19,22,23,26,42,43,44 W 2,442,099,963 4,022,787,596 Trade and other payables 20,42,43,46 2,738,558,996 2,995,444,445 Contract liabilities 33 2,764,870,427 - Due to customers for contract work - 3,182,438,171 Advances from customers - 397,846,839 Derivative liabilities 26,42,43 128,650,048 512,490 Firm commitment liabilities 26 23,090,129 80,352,951 Income tax payable 2,962,796 32,969,188 Short-term provisions 25 1,248,419,736 - Liabilities held for sale 48,49 5,778,319,534 4,877,890,595 Other current liabilities 21 5,695,679 24,628,777

Total current liabilities 15,132,667,308 15,614,871,052

Long-term financial liabilities 18,19,22,23,26,42,43,44 1,184,367,443 1,321,664,252 Long-term trade and other payables 20,42,43,46 9,356,253 9,992,533 Liabilities for defined benefit plans 24 100,389,492 136,635,778 Long-term provisions 25 823,946,522 844,489,980 Derivative liabilities 26,42,43 47,743,478 410,327 Firm commitment liabilities 26 5,398,616 26,700,916 Deferred tax liabilities 89,812,979 81,903,492 Other non-current liabilities 21 - 141,195 Total non-current liabilities 2,261,014,783 2,421,938,473

Total liabilities 17,393,682,091 18,036,809,525

Equity Common stock 27 345,827,130 283,327,130 Capital surplus 27 2,227,531,928 1,049,896,118 Hybrid bonds 28 428,589,000 428,589,000 Capital adjustments 29 (8,351,263,594) (8,355,403,121) Accumulated other comprehensive income 16,26,30 1,088,081,866 1,478,130,372 Retained earnings 31 16,449,215,086 16,236,901,897 Equity attributable to owners of the Company 12,187,981,416 11,121,441,396

Non-controlling interests 1,32 1,223,569,551 1,250,596,586

Total equity 13,411,550,967 12,372,037,982

Total liabilities and equity W 30,805,233,058 30,408,847,507

See accompanying notes to the condensed consolidated interim financial statements. 4

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Condensed Consolidated Interim Statements of Comprehensive Income For the three-month and six-month periods ended June 30, 2018 and 2017 (Unaudited)

(In thousands of won) 2018 2017 Three-month Six-month Three-month Six-month Note period period period period

Sales 26,33,34,46 W 3,124,413,872 6,166,946,066 4,245,773,300 8,555,010,540 Cost of sales 9,26,36,46 3,082,759,923 6,101,058,709 3,751,040,635 7,663,788,027 Gross profit 41,653,949 65,887,357 494,732,665 891,222,513

Selling, general and administrative expenses 35,36 217,355,736 365,384,383 346,345,021 601,321,485 Operating profit (loss) 34 (175,701,787) (299,497,026) 148,387,644 289,901,028

Finance income 26,37,42 203,260,734 340,998,105 617,774,704 1,259,140,941 Finance costs 26,37,42 444,219,000 586,976,405 460,054,454 659,345,626 Other non-operating income 26,32,38,42 321,178,359 310,555,527 108,014,940 50,915,400 Other non-operating expenses 26,32,38,42 217,510,875 291,552,453 124,363,656 495,172,661 Share of profit of equity accounted investees 11,12 12,092,296 26,591,544 5,989,435 8,446,473 Profit (loss) before income taxes (300,900,273) (499,880,708) 295,748,613 453,885,555 Income tax expense (profit) 39 (67,148,298) (134,088,168) 113,028,106 157,007,445 Profit (loss) from continuing operations for the period 34 (233,751,975) (365,792,540) 182,720,507 296,878,110

Discontinued operation Profit from discontinued operation, net of tax 34,49 23,404,843 181,244,346 2,431,833,091 2,770,338,507 Profit (loss) for the period 34,42 W (210,347,132) (184,548,194) 2,614,553,598 3,067,216,617

Other comprehensive income (loss) 16,24,26,30,42 Items that are or may be reclassified subsequently to profit or loss: Changes in fair value of available-for-sale financial assets W - - 164,970,857 171,637,916 Effective portion of changes in fair value of cash flow hedges 384,253 620,200 (910,007) 23,653,105 Exchange differences on translating foreign operations 93,890,280 70,994,816 25,346,843 (39,506,401) Changes in equity of equity method investments 70,188 7,785,490 (87,300) (142,804)

Total items that are or may be reclassified subsequently to profit or loss 94,344,721 79,400,506 189,320,393 155,641,816 Items that will not be reclassified to profit or loss: Changes in fair value of financial assets measured at FVOCI 681,068 (1,346,152) - - Actuarial gains and losses 9,076,528 8,919,459 (83,764) (6,461,988) Changes in retained earnings of equity method investments (12,425) (12,425) - 531 Total items that will not be reclassified to profit or loss 9,745,171 7,560,882 (83,764) (6,461,457) Other comprehensive income for the period, net of tax 104,089,892 86,961,388 189,236,629 149,180,359 Total comprehensive income (loss) for the period W (106,257,240) (97,586,806) 2,803,790,227 3,216,396,976

See accompanying notes to the condensed consolidated interim financial statements. 5

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Condensed Consolidated Interim Statements of Comprehensive Income, Continued For the three-month and six-month periods ended June 30, 2018 and 2017 (Unaudited)

(In thousands of won, except share information) 2018 2017 Three-month Six-month Three-month Six-month Note period period period period

Profit (loss) attributable to: Owners of the Company W (235,659,625) (223,244,945) 2,531,735,617 2,907,626,891 Non-controlling interests 25,312,493 38,696,751 82,817,981 159,589,726

(210,347,132) (184,548,194) 2,614,553,598 3,067,216,617 Total comprehensive income (loss) attributable to: Owners of the Company (133,444,784) (137,774,047) 2,606,590,492 2,947,348,795 Non-controlling interests 27,187,544 40,187,241 197,199,735 269,048,181 W (106,257,240) (97,586,806) 2,803,790,227 3,216,396,976 Earnings (loss) per share 40 Basic earnings (loss) per share (in won) from continuing operations (3,833) (6,474) 3,627 4,949 Basic earnings per share (in won) from discontinued operations W 204 2,655 44,855 46,855

See accompanying notes to the condensed consolidated interim financial statements.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Condensed Consolidated Interim Statements of Changes in Equity For the six-month periods ended June 30, 2018 and 2017 (Unaudited)

(In thousands of won) Common Capital Capital Accumulated other Non-controlling

stock surplus Hybrid bonds adjustments comprehensive income Retained earnings interests Total equity

Balance at January 1, 2017 W 380,000,000 1,124,895,931 428,589,000 (1,367,899,180) 1,937,430,922 13,433,928,634 1,849,616,342 17,786,561,649

Total comprehensive income (loss) for the

period Profit for the period - - - - - 2,907,626,891 159,589,726 3,067,216,617

Changes in fair value of

available-for-sale financial assets - - - - 58,790,235 - 112,847,681 171,637,916

Effective portion of changes in fair value of cash

flow hedges - - - - 23,278,362 - 374,743 23,653,105

Exchange differences on translating foreign

operations - - - - (35,789,961) - (3,716,440) (39,506,401)

Changes in equity of equity method investments - - - - (145,034) - 2,230 (142,804)

Actuarial gains and losses - - - - - (6,412,177) (49,811) (6,461,988)

Changes in retained earnings of equity method

investments - - - - - 478 53 531

Transactions with owners of the parent,

recognized directly in equity Dividends ------(7,081,806) (7,081,806)

Acquisition of treasury stocks - - - (10,448,041) - - - (10,448,041)

Interest for hybrid bonds - - - - - (10,500,000) - (10,500,000)

Reclassification of revaluation surplus - - - - (9,636,257) 9,636,257 - -

Changes from spin-off (96,672,870) (214,543,665) - (7,036,683,465) (347,102,845) 335,137,390 (894,413,054) (8,254,278,509)

Others - - - 31,886,126 - - (5,464,212) 26,421,914

Balance at June 30, 2017 W 283,327,130 910,352,266 428,589,000 (8,383,144,560) 1,626,825,422 16,669,417,473 1,211,705,452 12,747,072,183

Balance at December 31, 2017 W 283,327,130 1,049,896,118 428,589,000 (8,355,403,121) 1,478,130,372 16,236,901,897 1,250,596,586 12,372,037,982

Adjustment on initial application of K-IFRS

1115 (net of tax) - - - - - (4,728,506) - (4,728,506)

Adjustment on initial application of K-IFRS

1109 (net of tax) - - - - (446,395,693) 421,662,929 (1,892,134) (26,624,898)

Adjusted balance at January 1, 2018 283,327,130 1,049,896,118 428,589,000 (8,355,403,121) 1,031,734,679 16,653,836,320 1,248,704,452 12,340,684,578 Total comprehensive income (loss) for the

period Profit (loss) for the period - - - - - (223,244,945) 38,696,751 (184,548,194)

Changes in fair value of financial assets

measured at FVOCI - - - - (1,388,967) - 42,815 (1,346,152)

Effective portion of changes in fair value of cash

flow hedges - - - - 620,200 - - 620,200

Exchange differences on translating foreign

operations - - - - 69,410,967 - 1,583,849 70,994,816

Changes in equity of equity method investments - - - - 7,785,490 - - 7,785,490

Actuarial gains and losses - - - - - 9,055,633 (136,174) 8,919,459

Changes in retained earnings of equity method

investments - - - - - (12,425) - (12,425)

Transactions with owners of the parent,

recognized directly in equity Issuance of common stock 62,500,000 1,177,635,810 - - - - - 1,240,135,810

Dividends ------(532) (532)

Interest for hybrid bonds - - - - - (10,500,000) - (10,500,000)

Reclassification of revaluation surplus - - - - (20,080,503) 20,080,503 - -

Others - - - 4,139,527 - - (65,321,610) (61,182,083)

Balance at June 30, 2018 W 345,827,130 2,227,531,928 428,589,000 (8,351,263,594) 1,088,081,866 16,449,215,086 1,223,569,551 13,411,550,967 See accompanying notes to the condensed consolidated interim financial statements. 7

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Condensed Consolidated Interim Statements of Cash Flows For the six-month periods ended June 30, 2018 and 2017 (Unaudited) (In thousands of won) Note 2018 2017

Cash flows from operating activities Profit (loss) for the period W (184,548,194) 3,067,216,617 Adjustments 297,311,934 (1,793,195,042) Cash generated from operations 41 112,763,740 1,274,021,575 Interest received 76,196,158 78,278,516 Interest paid (101,983,589) (172,386,881) Dividends received 29,915,394 17,129,467 Income taxes paid (31,983,673) (136,569,794) Net cash provided by operating activities 84,908,030 1,060,472,883

Cash flows from investing activities Proceeds from sale of short-term financial assets 456,006,968 165,012,124 Proceeds from collection of other receivables 5,225,348 2,280 Proceeds from sale of investments in associates and joint ventures 1,113,000 4,268,993 Proceeds from sale of long-term financial assets 133,138,571 774,861,243 Proceeds from collection of long-term other receivables 1,225,045 68,746,302 Proceeds from sale of property, plant and equipment 34,114,914 26,650,098 Proceeds from sale of intangible assets 323,570 6,237,916 Proceeds from sale of non-current asset held for sale 383,699,576 63,999,842 Proceeds from government grants received 172,849 301,790 Proceeds from collection of other non-current assets - 307,896 Acquisition of short-term financial assets (948,843,910) (144,739,096) Acquisition of other receivables (22,007) (44,988,586) Acquisition of investments in associates and joint ventures (3,300,000) - Acquisition of long-term financial assets (190,752,296) (403,230,215) Acquisition of long-term other receivables (1,884,614) (17,249,250) Acquisition of investment property (49,106) - Acquisition of property, plant and equipment (120,775,059) (218,842,070) Acquisition of intangible assets (2,816,831) (20,308,615) Acquisition of other non-current assets (967,700) - Changes in scope of consolidation 12,310,595 (19,460,753) Net cash provided by (used in) investing activities (242,081,087) 241,569,899

Cash flows from financing activities Proceeds from short-term financial liabilities 2,230,702,052 7,478,056,221 Proceeds from long-term financial liabilities 207,100,000 540,439,237 Paid-in capital increase 1,240,135,810 - Capital contribution from non-controlling interests 2,068,877 204,091 Repayment of short-term financial liabilities (3,550,248,716) (8,359,020,411) Repayment of long-term financial liabilities (55,570,000) (253,666,622) Acquisition of treasury stocks - (10,448,041) Hybrid bonds interest paid (10,500,000) (10,500,000) Dividend and distribution to non-controlling interests (3,471,366) (12,621,241) Changes from spin-off - (1,077,147,933) Net cash provided by (used in) financing activities 60,216,657 (1,704,704,699)

Substitution of assets held for sale (14,041,247) - Effects of exchange rate changes on cash and cash equivalents 10,718,843 (6,124,288) Net decrease in cash and cash equivalents (100,278,804) (408,786,205) Cash and cash equivalents at January 1 3,239,726,945 4,326,493,276 Cash and cash equivalents at June 30 W 3,139,448,141 3,917,707,071 See accompanying notes to the condensed consolidated interim financial statements.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

1. Reporting Entity

(1) Description of the controlling company Hyundai Heavy Industries Co., Ltd. (the “Parent Company”) was incorporated in 1973, under the Commercial Code of the Republic of Korea and is engaged in the manufacture and sale of ships, offshore structures, plants, engines and other products. The condensed consolidated interim financial statements comprise the Parent Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”) and the Group’s interest in associates and joint ventures.

In August 1999, the Parent Company was listed on the Korea Exchange. As of June 30, 2018, its major shareholders consist of Hyundai Heavy Industries Holdings Co., Ltd. (formerly, Hyundai Robotics Co., Ltd.) (27.74%), National Pension Service (9.14%) and KCC Corporation (6.76%).

The Parent Company was spun-off to an existing entity, Hyundai Heavy industries Co., Ltd. which engages in shipbuilding segment, and newly established entities, Hyundai Electric & Energy Systems Co., Ltd., Hyundai Construction Equipment Co., Ltd., and Hyundai Heavy Industries Holdings Co., Ltd. (formerly, Hyundai Robotics Co., Ltd.) which engage in electro electric systems segment, construction equipment segment, and robotics/financial services segment, respectively, on April 1, 2017.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

1. Reporting Entity, Continued (2) Consolidated subsidiaries Subsidiaries as of June 30, 2018 and December 31, 2017 are summarized as follows:

Fiscal Ownership (%) Company Main business Location year end 2018 2017 Hyundai Samho Heavy Industries Co., Shipbuilding Korea December

Ltd. 80.54 80.54 Hyundai Mipo Dockyard Co., Ltd.(*1,2) Shipbuilding Korea December 42.34 42.34 Hyundai Hyms Co., Ltd. Sale and manufacture of Korea December machinery equipment for shipbuilding 100.00 100.00 Komas Corporation Shipping Korea December 100.00 100.00 Hyundai E&T Co., Ltd.(*1) Other engineering services Korea December 100.00 100.00 Ulsan Hyundai Football Club Co., Ltd. Football club Korea December 100.00 100.00 HI Investment & Securities Co., Securities brokerage Korea December

Ltd.(*1,3) 85.32 85.32 HI Asset Management Co., Ltd.(*1,3) Asset management Korea December 99.99 99.99 Hyundai Futures Corporation(*1,3) Entrust and brokerage of Korea December

futures transactions 65.22 65.22 Hyundai Ship Private Fund 2(*1,3) Other financial business Korea December 100.00 100.00 HI Himsen Multi Strategy Private Other financial business Korea December

Funds Investment Trust 1(*1,3) 71.34 71.11 Hi-Japan high dividend focus Other financial business Korea December

fund.(*1,3,5) - 50.72 HI KOSDAQ Venture Securities Other financial business Korea December

Investment Trust(*1,3,4) 70.72 - Hyundai Heavy Industries Fluid power equipment Korea December

Turbomachinery Co., Ltd. manufacturing business 96.67 96.67 Hyundai Heavy Industries Mos Co., Business facilities Korea December

Ltd. management service 100.00 100.00 Hyundai Heavy Industries Renewable energy business Korea December

Greenenergy Co., Ltd. 100.00 100.00 Hyundai (Jiangsu) Construction Sale and manufacture of China December Machinery Co., Ltd.(*1,3) machinery equipment for construction - 60.00 Beijing Hyundai Jingcheng Sale and manufacture of China December Construction Machinery Co., machinery equipment for Ltd.(*1,3) construction - 60.00 HHI China Investment Co., Ltd.(*3,6) Holding company China December - 100.00 Hyundai Financial Leasing Co., Finance and operating China December

Ltd.(*1,3,6) leases - 88.02 Hyundai Heavy Industries (China) Sale and manufacture of China December Electric Co., Ltd.(*1,3) switchboards for electric distribution - 100.00 Yantai Hyundai Moon Heavy Industries Sale and manufacture of China December

Co., Ltd.(*1,3) industrial boilers - 55.00 Changzhou Hyundai Hydraulic Sale and manufacture of China December Machinery Co., Ltd.(*1,3) hydraulic cylinders for construction equipment - 100.00

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

1. Reporting Entity, Continued (2) Consolidated subsidiaries, continued

Fiscal Ownership(%) Company Main business Location year end 2018 2017 Hyundai (Shandong) Heavy Industries Sale and manufacture of China December

Machinery. Co., Ltd. wheel loaders 100.00 100.00 Weihai Hyundai Wind Power Technology Sale and manufacture of China December Co., Ltd.(*1,3) facilities for wind power generation - 80.00 Hyundai Heavy Industries (Shanghai) Research and development China December R&D Co., Ltd.(*1,3) of technology for construction machinery, engine and electric equipment - 100.00 Hyundai-Vinashin Shipyard Co., Ltd.(*1) Shipbuilding Vietnam December 65.00 65.00 Hyundai Transformers and Engineering Sale and manufacture of India March

India Private Ltd. transformers 100.00 100.00 Hyundai Power Transformers USA, Sale and manufacture of America December Inc.(*7) industrial electric equipment - 100.00 Pheco Inc. Design services for offshore America December

facilities 100.00 100.00 Hyundai Heavy Industries Brasil - Manufacture, trade and Brazil December Manufacturing and Trading of repair of heavy equipment Construction Equipment 100.00 100.00 Hyundai Heavy Industries Miraflores Manufacturing Panama December

Power Plant Inc. 100.00 100.00 Vladivostok Business Center(*7) Hotel operation Russia December 100.00 100.00 Hyundai Khorol Agro Ltd.(*7) Agriculture Russia December - 100.00 Hyundai Mikhailovka Agro Ltd.(*7) Agriculture Russia December - 100.00 Hyundai Heavy Industries France SAS Manufacturing France December 100.00 100.00 HHI Mauritius Limited Manufacturing Mauritius December 100.00 100.00 Hyundai West Africa Limited Manufacture of other Nigeria December

transport equipment 100.00 100.00 Hyundai Arabia Company L.L.C. Industrial plant construction Saudi Arabia December 100.00 100.00

(*1) The percentage of ownership includes indirect ownership. (*2) Even though the Group does not have a majority ownership of Hyundai Mipo Dockyard Co., Ltd., the Group determined that it has control over Hyundai Mipo Dockyard Co., Ltd., considering that the rest of shareholders are minority shareholders and widely dispersed, and the Group exercised majority voting rights in the past shareholders’ meetings. (*3) HI Investment & Securities Co., Ltd. and other fourteen subsidiaries are classified as non-current assets held for sale and liabilities held for sale as a result of the sale of the subsidiaries as of December 31, 2017 (see Note 48). (*4) HI KOSDAQ Venture Securities Investment Trust was newly included in subsidiaries that were subject to the consolidated financial statements during periods ended June 30,2018. However, because it will be sold, all assets and liabilities of the subsidiary are classified as assets held for sale and liabilities held for sale (see Note 48).

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

1. Reporting Entity, Continued (2) Consolidated subsidiaries, continued (*5) For the six-month period ended June 30, 2018, the Group’s investment has been reclassified to Investments in Associates due to partial disposal of holding interests and included in non-current assets held for sale. (*6) For the six-month period ended June 30, 2018, the process of selling 60 percent interests of HHI China Investment Co.,Ltd. was completed and reclassified to Investments in associates. (*7) For the six-month period ended June 30, 2018, the Group completed the selling holding interests of Hyundai Power Transformers USA, Inc. ( Trading partner : Hyundai Electric & Energy Systems Co., Ltd. (The Group’s Other related parties) , Sale amount: W30,900 million), Hyundai Mikhailovka Agro Ltd. ( Trading partner: LOTTE Iternational Co.,Ltd., Sale amount: W10,374 million) , Hyundai Khorol Agro Ltd. and Vladivostok Business Center (Trading partner: Lotte Hotel, Ltd., sale amount: W53,500 million)

(3) Changes in scope of consolidation (i) A subsidiary newly subject to consolidation for the six-month period ended June 30, 2018 is as follows:

Company Reason HI KOSDAQ Venture Securities Investment Trust Acquisition

(ii) Subsidiaries no longer subject to consolidation for the six-month period ended June 30, 2018 are as follows:

Company Reason Hi-Japan high dividend focus fund, Hyundai (Jiangsu) Construction Sale Machinery Co., Ltd., Beijing Hyundai Jingcheng Construction Machinery Co., Ltd., HHI China Investment Co., Ltd., Hyundai Financial Leasing Co., Ltd., Hyundai Heavy Industries (China) Electric Co., Ltd., Yantai Hyundai Moon Heavy Industries Co., Ltd., Changzhou Hyundai Hydraulic Machinery Co., Ltd., Weihai Hyundai Wind Power Technology Co., Ltd., Hyundai Heavy Industries (Shanghai) R&D Co., Ltd., Hyundai Power Transformers USA, Inc., Vladivostok Business Center, Hyundai Khorol Agro Ltd., Hyundai Mikhailovka Agro Ltd.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

1. Reporting Entity, Continued (4) Condensed financial information of consolidated subsidiaries (i) Condensed financial information of significant consolidated subsidiaries as of and for the six-month period ended June 30, 2018 is summarized as follows:

(In millions of won) Profit Total comprehensive Company Assets Liabilities Equity Sales (loss) income (loss)

Hyundai Samho Heavy Industries Co., Ltd. W 5,286,582 2,123,820 3,162,762 1,260,746 (110,272) (110,261) Hyundai Mipo Dockyard Co., Ltd. 3,894,235 1,619,358 2,274,877 1,094,658 50,470 50,469 Hyundai Hyms Co., Ltd. 185,012 14,635 170,377 120,256 12,709 12,709 Hyundai Heavy Industries Greenenergy Co., Ltd. 296,337 68,097 228,240 154,227 7,200 7,200 Hyundai-Vinashin Shipyard Co., Ltd. 455,377 402,656 52,721 215,887 7,847 10,182 Hyundai Heavy Industries Brasil - Manufacturing and Trading of Construction Equipment 143,102 41,401 101,701 35,309 (524) (12,115)

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

1. Reporting Entity, Continued (4) Condensed financial information of consolidated subsidiaries, continued (ii) Condensed financial information of significant consolidated subsidiaries as of and for the year ended December 31, 2017 is summarized as follows:

(In millions of won) Total comprehensive Company Assets Liabilities Equity Sales Profit (loss) income (loss) Hyundai Samho Heavy Industries Co., W Ltd. 5,111,911 1,830,038 3,281,873 2,770,975 (42,470) (34,892) Hyundai Mipo Dockyard Co., Ltd. 3,758,030 1,532,929 2,225,101 2,441,346 426,462 63,994 Hyundai Hyms Co., Ltd. 205,816 34,325 171,491 232,758 10,317 10,304 Hyundai Heavy Industries Greenenergy Co., Ltd. 255,448 34,408 221,040 259,797 (204,702) (204,741) Hyundai-Vinashin Shipyard Co., Ltd. 415,602 373,063 42,539 351,863 19,847 15,766 Hyundai Power Transformers USA, Inc. 165,827 132,857 32,970 114,049 (7,303) (12,024) Hyundai Heavy Industries Brasil - Manufacturing and Trading of Construction Equipment 155,272 41,456 113,816 71,136 (67,031) (87,130) Hyundai Heavy Industries France SAS 12,312 11,511 801 717 38 44

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

1. Reporting Entity, Continued (5) Non-controlling interests The information about non-controlling interests of significant consolidated subsidiaries as of and for the six- month period ended June 30, 2018 and the year ended December 31, 2017 is summarized as follows:

(In millions of won) Hyundai Mipo Dockyard

Co., Ltd.(*)

2018 2017 Ownership of non-controlling interests 57.66% 57.66% Net assets W 2,274,877 2,225,101 Book value of non-controlling interests 1,357,969 1,328,256 Net income 50,470 426,462 The profit attributable to non-controlling interests 30,127 254,573 Cash flows from operating activities 7,467 (31,041) Cash flows from investing activities (419,879) 745,904 Cash flows from financing activities 188,072 (865,163) Net increase (decrease) in cash and cash equivalents (224,340) (150,300) Dividends paid to non-controlling interests - -

(*) Ownership of non-controlling interests considering the treasury shares of Hyundai Mipo Dockyard Co., Ltd. is 57.54% as of June 30, 2018 and December 31, 2017, respectively, and effective ownership of non-controlling interests considering stake of an intermediate parent company is 59.69% as of June 30, 2018 and December 31, 2017, respectively.

2. Basis of Preparation

(1) Statement of compliance The condensed consolidated interim financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audits of Corporations. These condensed consolidated interim financial statements were prepared in accordance with K-IFRS No.1034, ‘Interim Financial Reporting’ as part of the period covered by the Group’s K-IFRS annual financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements as of and for the year ended December 31, 2017. These condensed consolidated interim financial statements do not include all of the disclosures required for full annual financial statements.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

2. Basis of Preparation, Continued (2) Use of estimates and judgments (i) Judgments and uncertainties of assumptions and estimation The preparation of the condensed consolidated interim financial statements in conformity with K-IFRS requires management to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income, and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as of and for the year ended December 31, 2017, except for new significant judgments and sources of estimated uncertainty related to the adoption of K-IFRS 1115 and K-IFRS 1109 as described in Note 3.

(ii) Measurement of fair value The Group’s accounting policies and disclosures require the measurement of fair value, for both financial and non-financial assets and liabilities. The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the CFO.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of K-IFRS, including the level in the fair value hierarchy in which such valuations should be classified.

Significant valuation issues are reported to the Parent Company Audit Committee.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

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

If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in the Note 43.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

3. Significant Accounting Policies

Except as described below, the accounting policies applied in these interim financial statements are the same as those applied in the Group’s consolidated financial statements as at and for the year ended December 31, 2017. These changes in accounting policies are expected to be reflected in the Group’s consolidated financial statements as at and for the year edning December 31, 2018.

(1) Changes in accounting policies The Group has initially adopted K-IFRS 1115, ‘Revenue from Contracts from Customers’ and K-IFRS 1109, ‘Financial Instruments’ from January 1, 2018. A number of other new standards are effective from January 1, 2018 but they do not have a material effect on the Group’s financial statements.

1) K-IFRS 1115, ‘Revenue from Contracts from Customers’ K-IFRS 1115 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including K-IFRS 1018 ‘Revenue’, K-IFRS 1011 ‘Construction Contracts’, K-IFRS 2031 ‘Revenue- Barter transactions involving advertising services’, K- IFRS 2113 ‘Customer Loyalty Programs’, K-IFRS 2115 ‘Agreements for the construction of real estate’, K-IFRS 2118 ‘Transfers of assets from customers’.

The Group has adopted K-IFRS 1115 with the effect of initially applying this standard recognized at the date of initial application January 1, 2018. The cumulative effect of the initial application of the Standard was recognized by adjusting the beginning balance of the retained earnings (or, if appropriate, other capital elements) in the financial year. In accordance with K-IFRS 1115, the Standard is applied retroactively only to contracts that are not completed on the initial application date, and the practical expedient is applied, which does not restate the financial statements for completed contracts.

The following table summarize the impact, net of tax, of transition to K-IFRS 1115 on retained earnings at January 1, 2018.

(In millions of won) Impact of adopting K-IFRS 1115 at January 1, 2018 Significant financial elements W (2,893) Identification of performance obligations (1,836) W (4,729)

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

3. Significant Accounting Policies, Continued (1) Changes in accounting policies, continued (2) K-IFRS 1115, ‘Revenue from Contracts from Customers’, continued There were no material impacts on the Group’s consolidated interim statement of cash flows for the six months period ended June 30, 2018.

The impact on the condensed interim consolidated statement of financial position as of June 30, 2018 is as follow: Amounts

without adoption (In millions of won) As reported Adjustments of K-IFRS 1115 Assets W Current assets 18,121,894 (35,565) 18,086,329 Contract assets 2,976,544 (2,976,544) - Due from customers for contract work - 2,812,502 2,812,502 Other current assets 1,681,174 128,477 1,809,651 Non-current assets 12,683,339 (1,600) 12,681,739 Deferred tax assets 1,050,144 (1,600) 1,048,544 Total assets 30,805,233 (37,165) 30,768,068 Equity Retained earnings Equity attributable to owners of 16,449,215 4,415 16,453,630 the Company 12,187,981 4,415 12,192,396 Non-controlling interests 1,223,570 - 1,223,570 Total equity 13,411,551 4,415 13,415,966 Liabilities Current liabilities 15,132,667 (41,580) 15,091,087 Contract liabilities 2,764,870 (2,764,870) - Due to customers for contract work - 3,971,710 3,971,710 Provisions 1,248,420 (1,248,420) - Non-current liabilities 2,261,015 - 2,261,015 Deferred tax liabilities 89,813 - 89,813 Total liabilities 17,393,682 (41,580) 17,352,102 Total liabilities and equity W 30,805,233 (37,165) 30,768,068

The impact on the condensed interim consolidated statement of comprehensive income for six-month period ended June 30, 2018 are as follow:

Amounts

without adoption (In millions of won) As reported Adjustments of K-IFRS 1115 Sales W 6,166,946 (4,442) 6,162,504 Cost of sales 6,101,059 40,871 6,141,930 Gross profit 65,887 (45,313) 20,574 Selling, general and administrative expenses 365,384 - 365,384 Operating loss (299,497) (45,313) (344,810) Loss before income tax (499,881) (427) (500,308) Loss from continuing operation for the period (365,793) (313) (366,106) Profit from discontinued operation for the period 181,245 - 181,245 Net loss for the period W (184,548) (313) (184,861) 18

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

3. Significant Accounting Policies, Continued (1) Changes in accounting policies, continued 1) K-IFRS 1115, ‘Revenue from Contracts from Customers’, continued Significant new accounting policies and changes in accounting policies related to various goods and services provided by the Group are as follows:

Nature, timing of satisfaction of Performance obligation, Significant payment terms Nature of change accounting policy Tr a n s fe r of goods (engine) When calculating the transaction Under the changed accounting price, it is necessary to reflect in the policy, consider that there is a transaction price the significant significant financing element financial benefits that arise from the related to the advance payment transfer of the goods to the received from the customer and customer due to the agreed reflect it in the transaction price. payment date between the parties.

Provision of services Identify performance obligations Some of the order changes are not that are distinct from contracts with distinguished in the context of the customers. contract so that the revenue is recognized as a single performance obligation without separating performance obligations.

Prior to applying K-IFRS 1115, the financial costs are classified as cost of sales because they meet the definition of contract cost. However, in K-IFRS 1115, financial cost is not included in the contract cost. In addition, construction contracts such as vessels under construction are classified as finance costs because they are deemed not to qualify for the qualifying asset definition in K-IFRS 1023.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

3. Significant Accounting Policies, Continued (1) Changes in accounting policies, continued 2) K-IFRS 1109, ‘Financial Instruments’ K-IFRS 1109 sets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces existing guidance in K-IFRS 1039, ‘Financial Instruments: Recognition and Measurement’.

The following table summarizes the impact, net of tax, of transition to K-IFRS 1109 on the opening balance of reserves, retained earnings and non-controlling interests.

(In millions of won) Impact of adopting K-IFRS 1109 At January 1, 2018 Retained earnings Recognition of expected credit losses under K-IFRS 1109 W (10,106) Changes in retained earnings from reclassification of available-for-sale financial assets to financial assets measured at FVOCI 429,793 Changes in retained earnings from reclassification of available-for-sale financial assets to financial assets measured at FVTPL (15) Increase in provision for losses on debt instruments measured at FVOCI 24 Increase in deferred tax on provision for loss 2,492 Changes in retained earnings from reclassification of loans and receivables to financial assets measured at FVOCI (10) Increase in provision for financial guarantee (662) Increase in deferred tax on provision for financial guarantee 147 Impact at January 1, 2018 421,663 Non-controlling interests Recognition of expected credit losses under K-IFRS 1109 (590) Changes in retained earnings from reclassification of available-for-sale financial assets to financial assets measured at FVOCI 6,995 Changes in retained earnings from reclassification of available-for-sale financial assets to financial assets measured at FVTPL 190 Increase in provision for losses on debt instruments measured at FVOCI 65 Increase in deferred tax on provision for loss 121 Changes in retained earnings from reclassification of loans and receivables to financial assets measured at FVOCI (28) Increase in provision for financial guarantee (1,788) Increase in deferred tax on provision for financial guarantee 398 Impact at January 1, 2018 W 5,363

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

3. Significant Accounting Policies, Continued (1) Changes in accounting policies, continued 2) K-IFRS 1109, ‘Financial Instruments', continued The details of new significant accounting policies and the nature and effect of the changes to previous accounting policies are set out below.

(i) Classification and measurement of financial assets and financial liabilities K-IFRS 1109 largely retains the existing requirements in K-IFRS 1039 for the classification and measurement of financial liabilities. However, it eliminates the previous K-IFRS 1039 categories for financial assets of held to maturity, loans and receivables and available for sale.

The adoption of K-IFRS 1109 has not had a significant effect on the Group’s accounting policies related to financial liabilities and derivative financial instruments.

The impact of K-IFRS 1109 on the classification and measurement of financial assets is set out below.

Under K-IFRS 1109, on initial recognition, a financial asset is classified as measured at: amortized cost; FVOCI – debt investment: FVOCI – equity investment; or FVTPL. The classification of financial assets under K-IFRS 1109 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. Derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification.

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL: - It is held within a business model whose objective is to hold assets to collect contractual cash flows; and - Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: - It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and - Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment- by-investment basis.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

3. Significant Accounting Policies, Continued (1) Changes in accounting policies, continued 2) K-IFRS 1109, ‘Financial Instruments’, continued (i) Classification and measurement of financial assets and financial liabilities, continued

The following accounting policies apply to the subsequent measurement of financial assets.

Financial assets These assets are subsequently measured at fair value. Net gain and at FVTPL losses, including any interest or dividend income, are recognized in profit or loss.

Financial assets These assets are subsequently measured at amortized cost using the at amortized cost effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss in derecognition is recognized in profit or loss.

Debt investments These assets are subsequently measured at fair value. Interest income at FVOCI calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.

Equity investments These assets are subsequently measured at fair value. Dividends are at FVOCI recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.

The effect on the carrying amount of a financial asset under the application of K-IFRS 1109 on January 1, 2018 relates only to the new impairment requirement as described below.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

3. Significant Accounting Policies, Continued (1) Changes in accounting policies, continued (2) K-IFRS 1109, ‘Financial Instruments’, continued (i) Classification and measurement of financial assets and financial liabilities, continued

The following table and the accompanying notes below explain the original measurement categories under K-IFRS 1039 and the new measurement categories under K-IFRS 1109 for each class of the Group’s financial assets as at January 1, 2018.

(In millions of won) Classification Classification Measurement Measurement Pursuant to Pursuant to Pursuant to Pursuant to K-IFRS 1039 K-IFRS 1109 K-IFRS 1039 K-IFRS 1109 Cash and cash equivalents Loans and receivables Amortized cost W 3,239,727 3,239,727 Short-term financial Loans and receivables Amortized cost 400,597 400,597 instruments Trade and other receivables Loans and receivables Amortized cost 1,942,374 1,941,946 Contract assets Loans and receivables Amortized cost 3,357,947 3,347,186 Long-term financial Loans and receivables Amortized cost 234 234 investments Long-term Trade and other Loans and receivables Amortized cost 102,288 102,288 receivables Available-for-sale Financial assets Equity securities 133,620 133,620 financial assets measured at FVOCI Financial assets at fair value Financial assets at fair Financial assets through profit or loss value through profit or 722 722 measured at FVTPL (current) loss Financial assets at fair value Financial assets at fair Financial assets through profit or loss value through profit or 1,112 1,112 measured at FVTPL (non-current) loss Derivative financial Fair value-hedging Derivative financial assets 169,227 169,227 assets instruments Total financial assets W 9,347,848 9,336,659

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

3. Significant Accounting Policies, Continued (1) Changes in accounting policies, continued 2) K-IFRS 1109, ‘Financial Instruments’, continued (ii) Impairment of financial assets

K-IFRS 1109 replaces the ‘incurred loss’ model in K-IFRS 1039 with an ‘expected credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under K-IFRS 1109, credit losses are recognized earlier than under K-IFRS 1039.

The financial assets at amortized cost consist of trade receivables, cash and cash equivalents, and corporate debt securities.

Under K-IFRS 1109, loss allowances are measured on either of the following bases: - 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and - lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.

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

The Group has elected to measure loss allowances for trade receivables and contract assets at an amount equal to lifetime ECLs.

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

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

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

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

3. Significant Accounting Policies, Continued (1) Changes in accounting policies, continued 2) K-IFRS 1109, ‘Financial Instruments’, continued (ii) Impairment of financial assets, continued

(a) Measurement of expected credit losses Expected credit losses are a probability weighted estimate of credit losses. Credit losses are measured as the present value of all cash deficits (ie, the difference between all contractual cash flows to be paid under the contract and all contractual cash flows expected to be received).

Expected credit losses are discounted at the effective interest rate of the financial asset.

(b) Financial assets with impaired credit At the end of each reporting period, the Group assesses whether the credit of financial assets at amortized cost and debt investments at FVOCI are impaired. If there is more than one event that adversely affects the estimated future cash flows of the financial asset, the financial asset is credit-impaired.

(c) Presentation of allowance for credit losses on the statement of financial position The allowance for losses on financial assets at amortized cost is deducted from the carrying amount of the asset. For debt investments at FVOCI, the loss allowance is recognized in other comprehensive income instead of reducing the carrying amount of the asset. Impairment losses related to trade receivables and other receivables, including contract assets, were not presented separately in the statement of comprehensive income, but expressed 'selling and administrative expenses' or 'other non-operating expenses' similar to those presented in K-IFRS 1039. Impairment losses on other financial assets were not presented separately in the statement of comprehensive income considering their importance and were presented in 'financial expenses' similar to those presented in K-IFRS 1039.

(iii) Hedge accounting K-IFRS 1109 retains the mechanics of hedge accounting (fair value hedge, cash flow hedge, hedging on net investment in a foreign operation) which was defined in K-IFRS 1039 but provides principle-based and less complex guidance on hedging which focuses on the risk management activities. More hedged items and hedging instruments would qualify for hedge accounting, more qualitative and forward-looking approach will be taken to assessing hedge effectiveness, and qualitative threshold (80~125%) is removed under K-IFRS 1109.

(iv) Transition Changes in accounting policies resulting from the adoption of K-IFRS 1109 have been applied retrospectively, except as described below.

The Group has taken an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements. Therefore, differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of K-IFRS 1109 are recognized in retained earnings and reserves at 1 January 2018. Accordingly, the information presented for 2017 does not generally reflect the requirements of K-IFRS 1109 but rather those of K-IFRS 1039.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

3. Significant Accounting Policies, Continued (1) Changes in accounting policies, continued 2) K-IFRS 1109, ‘Financial Instruments’, continued (iv) Transition, continued The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application. - the determination of the business model within which a financial asset if held. - the designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL. - the designation of certain investments in equity instruments not held for trading as at FVOCI.

All hedge relationships designated in accordance with K-IFRS 1039 on December 31, 2017 have met the requirements for hedge accounting under K-IFRS 1109 on January 1, 2018. Therefore, it is assumed that the hedging relationship continues.

(2) New standards and interpretations not yet adopted The following new standards, interpretations and amendments to existing standards have been published and are mandatory for the Group for annual periods beginning after January 1, 2018, and the Group has not early adopted them.

1) K-IFRS 1116 ‘Lease’ K-IFRS 1116 Lease, published on May, 2017, is effective for annual periods beginning on or after January 1, 2019, with earlier adoption permitted. It replaces existing lease guidance, including K-IFRS 1017 ‘Lease’, K- IFRS 2104 ‘Determining whether an Arrangement contains a Lease’, K-IFRS 2015 ‘Operating lease-Incentive’, K-IFRS 2027 ‘Evaluating the substance of transactions involving the legal form of a lease’.

At inception of an arrangement, the Group determines whether the arrangement is or contains a lease. At the date of initial application, it is recognize a lease or the contract contains a lease in accordance with this Standard. However, the Group may not judge again all contracts by applying the practical expedient for contracts before the first application date.

The lessee and the lessor must account for each lease element of the lease as a lease, separate from the non-lease element non-lease (element awards) in an agreement that the contract contains a lease or lease.

A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. The method of accounting for each lease element and associated non-lease element as one lease element can be selected by applying the practical expedient and applied for each type of underlying asset.

(i) Lessee accounting The lessee recognizes the cumulative effect of applying the retrospective application for each past reporting period (full retrospective method) and the initial application at the date of initial application, in accordance with K-IFRS 1008, ‘Changes in Accounting Policies and Accounting Estimates and Errors’ (Cumulative Effect Batch Reconciliation Action). The Group has not determined the retrospective method of K-IFRS 1116 ‘Lease’.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

3. Significant Accounting Policies, Continued (2) New standards and interpretations not yet adopted, continued 1) K-IFRS 1116 ‘Lease’, continued (i) Lessee accounting, continued The Group did not undertake preparations for the adoption of K-IFRS 1116 ‘Leases’. Therefore, it could not analyze the financial impact of the adoption of this standard on the financial statements. The Group plans to complete the financial impact analysis of the application of this standard in 2018.

(ii) Lessor accounting As a lessor, the Group expects that the existing lease accounting will not be significantly different even though K-IFRS 1116 is applied, and will have no significant impact on the financial statements.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

4. Risk Management

The Group’s risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as of and for the year ended December 31, 2017.

The Group’s debt-to-equity ratio and net borrowing ratio as of June 30, 2018 and December 31, 2017 are as follows:

(In millions of won, except ratio) 2018 2017

Total liabilities W 17,393,682 18,036,810 Total equity 13,411,551 12,372,038 Cash and deposits(*1) 4,097,483 3,640,558 Borrowings(*2) 3,601,092 5,298,385 Debt-to-equity ratio 129.69% 145.79% Net borrowing ratio(*3) (*4) 13.40%

(*1) Cash and deposits consist of cash, cash equivalents, short-term and long-term financial instruments. (*2) Discount on debentures is deducted from the face value of debentures. (*3) Net borrowing represents borrowings net of cash and deposits. (*4) The Group did not calculate the net borrowing ratio because it is a negative ratio.

The interest coverage ratio and basis of calculation for the six-month periods ended June 30, 2018 and 2017 are as follows:

(In millions of won, except ratio) 2018 2017

Operating profit (loss) W (299,497) 289,901 Interest expense(*1) 71,910 50,082 Interest coverage ratio(*2) (*3) 5.79

(*1) Borrowing costs capitalized interest expense for the six-month periods ended June 30, 2017 is excluded. (*2) The interest coverage ratio was recalculated due to the revision of the financial statements for the periods ended June 30, 2017 as a result of discontinued operation. (*3) Due to operating loss, the Group did not calculate the interest coverage ratio.

5. Cash and Cash Equivalents

Cash and cash equivalents as of June 30, 2018 and December 31, 2017 are as follows:

(In millions of won) 2018 2017

Cash W 787 1,294 Current deposit 13,652 39,446 Ordinary deposit 577,354 827,937 Others(MMDA and others) 2,547,655 2,371,050 W 3,139,448 3,239,727

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

6. Short-term and Long-term Financial Assets

Short-term and long-term financial assets as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) 2018 2017 Current Non-current Current Non-current

Financial instruments W 957,823 212 400,597 234 Held-for-trading investments - - 722 1,112 Available-for-sale financial assets - - - 133,620 Financial assets measured at FVTPL - 1,263 - - Financial assets measured at FVOCI - 131,554 - - W 957,823 133,029 401,319 134,966

7. Restricted Financial Instruments and Others

Financial instruments and others which are restricted in use as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) Description 2018 2017 Restrictions

Cash and cash equivalent W 10,000 10,000 Proceeds from stock trading contract

100,281 151,856 Others Short-term financial assets 210 9,667 Government grants and others Trade and other receivables 183 175 Guarantee deposits and others Long-term financial assets 68 68 Guarantee deposits for checking accounts W 110,742 171,766

The Group has deposited W199,200 million in financial institutions for the purpose of providing financial support to the Group’s partners as of June 30, 2018.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

8. Trade and Other Receivables and Contact Assets

(1) Trade and other receivables as of June 30, 2018 and December 31, 2017 are summarized as follows: (In millions of won) 2018 2017 Current Non-current Current Non-current Trade receivables: Trade receivables W 2,214,301 381,731 2,284,595 390,871 Allowance for doubtful accounts (844,386) (316,156) (848,265) (343,556) 1,369,915 65,575 1,436,330 47,315 Other receivables: Other accounts receivable 676,878 19 700,652 22 Allowance for doubtful accounts (210,947) - (208,681) (1) Accrued income 7,655 - 2,784 - Loans 6,932 35,537 6,370 37,273 Allowance for doubtful accounts (246) (540) - (662) Guarantee deposits 6,362 19,008 4,919 18,341 486,634 54,024 506,044 54,973

W 1,856,549 119,599 1,942,374 102,288

(2) Contact assets as of June 30, 2018 and December 31, 2017 are summarized as follows: (In millions of won) 2018 2017

Due from customers for contract work W - 3,357,947 Contact assets 2,978,596 - Allowance for doubtful accounts (2,052) - W 2,976,544 3,357,947

(3) Changes in allowance doubtful accounts in respect of trade and other receivables and contact assets for the six-month period ended June 30, 2018 and the year ended December 31, 2017 are as follows: (In millions of won) 2018 2017

Beginning balance W 1,401,165 1,874,882 Adjustment on initial application of K-IFRS 1109 11,189 - Adjusted Beginning balance 1,412,354 1,874,882 Impairment loss recognized 13,530 113,074 Reversal of impairment loss (41,267) (67,569) Write-offs and others (10,290) (134,407) Changes from spin-off - (110,668) Others - (274,147) Ending balance W 1,374,327 1,401,165

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

9. Inventories

Inventories as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) 2018 2017 Provision for Provision for Acquisition inventory Carrying Acquisition inventory Carrying cost valuation amount cost valuation amount

Merchandise W 8,945 (2,852) 6,093 11,214 (3,697) 7, 5 1 7 Finished goods 21,005 (4,469) 16,536 32,591 (7,663) 24,928 Work-in-progress 259,526 (46,708) 212,818 258,402 (47,141) 211,261 Raw materials 407,383 (6,181) 401,202 341,516 (6,186) 335,330 Supplies 12,804 - 12,804 12,530 - 12,530 Materials-in-transit 165,199 - 165,199 253,794 - 253,794 W 874,862 (60,210) 814,652 910,047 (64,687) 845,360

The reversal of write-down of W4,477 million and W42,825 million is deducted from cost of sales for the six- month periods ended June 30, 2018 and 2017, respectively, and reclassified to inventory valuation gains and losses on discontinued operations.

10. Other Assets

Other assets as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) 2018 2017 Current Non-current Current Non-current Advance payments W 597,812 - 624,183 - Prepaid expenses 100,807 11,335 178,216 9,098 Plan assets - 23,111 - 38,441 Others(*) 982,555 - 1,062,136 90 W 1,681,174 34,446 1,864,535 47,629

(*) The Group acquired a vessel under construction due to cancellation of shipbuilding contracts and recognized it by fair value.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

11. Investments in Associates

(1) Investments in associates as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won, except percentage of ownership) 2018 2017 Fiscal Carrying Carrying Associates Location year end Business Ownership (%) amount Ownership (%) amount

New Korea Country Club Korea December Country club 29.00 W 25,586 29.00 W 25,438 Taebaek Wind Power Co., Ltd. Korea December Sale and manufacture of facilities for wind power generation 35.00 7,531 35.00 7, 11 6 Taebaek Guinemi Wind Power Co., Ltd. Korea December Sale and manufacture of facilities for wind power generation 37.50 4,610 37.50 4,634 Pyeongchang Wind Power Co., Ltd.(*1) Korea December Sale and manufacture of facilities for wind power generation 23.00 4,245 23.00 3,806 Changjuk Wind Power Co., Ltd. Korea December Sale and manufacture of facilities for wind power generation 43.00 11,359 43.00 11,030 KoFC-Partners Pioneer Champ 2011-1 Investment Korea December Collective investment Fund(*2) 21.21 - 21.21 - Hyundai Primorye Ltd.(*3) Russia December Farmland leasing service - - 49.99 - Hyundai Green Industries Co., W.L.L. Kuwait December Education 49.00 909 49.00 869 Tribridge Capital Management(*2) Cayman December Asset management 23.93 - 23.93 - HI ROKI1 Global Robo-advisor Securities investment Korea December Other financial Trust(*2) 40.41 39.42 HI Gold Ocean Kmarin No.8 Ship Investment Korea December Other financial Company(*2) 47.86 - 47.86 - HI Korean model Global Asset Allocation Securities Korea December Other financial Investment Trust(*2) 32.38 - 32.01 - KC LNG Tech Co., Ltd.(*4) Korea December Other engineering service 16.60 2,562 16.60 2,893 Zvezda-hyundai LLC Russia December Shipbuilding 49.00 - 49.00 - International Maritime Industries Company(*4) Saudi Arabia December Shipbuilding 10.00 7,308 10.00 8,307 HHI China Investment Co., Ltd.(*5) China December Holding company 40.00 164,805 - - Hyundai Financial Leasing Co., Ltd.(*5) China December Financial and operating leases 41.26 98,875 - - HI-Japan High Dividend Focus Fund(*5) Korea December Other financial 48.85 - - - Hi Korea Unification Renaissance Fund(*6) Korea December Other financial 38.62 - - - W 327,790 W 64,093

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

11. Investments in Associates, Continued

(1) Investments in associates as of June 30, 2018 and December 31, 2017 are summarized as follows, continued: (*1) As of June 30, 2018, the Group provided banks its equity securities as collaterals for Pyeongchang Wind Power Co., Ltd., which is a related party (see note 46). (*2) As of December 31, 2017, HI Investment & Securities Co., Ltd. was classified as a non-current asset held for sale due to the sales decision of its subsidiary. (*3) As of December 31, 2017, the Group’s investment has been reclassified to non-current assets held for sale due to the sale decision of the shares and for the periods ended June 30, 2018, the Group completed the selling (Trading partner: LOTTE International Co., Ltd., Sale amount: W13,125 million). (*4) Although the Group’s ownership is less than 20%, the Group considers the equity securities as investments in associates since the Group has a significant influence on main operating and financial policy decisions. (*5) For the periods ended June 30, 2018, the Group’s investment has been reclassified to Investments in associates due to partial disposal of holding interests and the Group’s holding interests of HI-Japan high dividend focus fund included in non-current assets held for sale. (*6) For the periods ended June 30 2018, HI Asset Management Co., Ltd, which is a subsidiary of the Group, newly acquired and classified as non-current assets held for sale.

(2) Condensed financial information of associates as of June 30, 2018 and December 31, 2017 is summarized as follows:

(In millions of won) 2018 Condensed financial information of associates Dividends Operating Other Total received from Current Non-Current Current Non-Current profit comprehensive comprehensive investments in Associates assets assets liabilities liabilities Equity Sales (loss) Profit (loss) income income (loss) associates New Korea Country Club W 18,579 19,564 2,392 4,198 31,553 6,388 952 1,013 - 1,013 145 Taebaek Wind Power Co., Ltd. 6,178 33,190 1,510 15,432 22,426 4,153 2,169 1,934 - 1,934 274 Taebaek Guinemi Wind Power Co,. Ltd. 10,106 2,254 67 - 12,293 - (64) (64) - (64) - Pyeongchang Wind Power Co., Ltd. 7, 9 2 9 72,331 2,897 58,905 18,458 4,966 2,258 1,912 - 1,912 - Changjuk Wind Power Co., Ltd. 5,030 30,338 1,370 8,162 25,836 4,079 2,297 2,173 - 2,173 596 Hyundai Green Industries Co., W.L.L. - 1,854 - - 1,854 - - - 80 80 - KC LNG Tech Co., Ltd. 7, 5 8 8 12,730 4,108 777 15,433 389 (2,380) (1,998) - (1,998) - Zvezda-hyundai LLC 1,876 97 - 2,327 (354) - (299) (232) 9 (223) - International Maritime Industries Company 107,526 50,991 85,310 123 73,084 - - (13,317) 3,327 (9,990) - HHI China Investment Co., Ltd. 708,732 159,795 269,943 66,528 532,056 479,416 65,034 62,380 13,835 76,215 - Hyundai Financial Leasing Co., Ltd. 235,296 60,530 21,807 54,914 219,105 16,170 12,770 9,448 7, 2 9 4 16,742 1,858 W 1,108,840 443,674 389,404 211,366 951,744 515,561 82,737 63,249 24,545 87,794 2,873

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

11. Investments in Associates, Continued (2) Condensed financial information of associates as of June 30, 2018 and December 31, 2017 is summarized as follows, continued:

(In millions of won) 2017 Condensed financial information of associates Dividends Non- Operating Other Total received from

Current Current Current Non-Current profit Profit comprehensive comprehensive investments in

Associates assets assets liabilities liabilities Equity Sales (loss) (loss) income (loss) income (loss) associates New Korea Country Club W 16,386 19,925 1,208 4,062 31,041 13,174 943 995 - 995 145 Taebaek Wind Power Co., Ltd. 4,916 34,311 2,567 15,385 21,275 7, 0 5 6 2,866 2,274 - 2,274 - Taebaek Guinemi Wind Power Co,. Ltd. 10,701 1,668 12 - 12,357 - (170) (165) - (165) - Pyeongchang Wind Power Co., Ltd. 9,267 67,886 1,023 59,584 16,546 11,907 5,058 3,015 - 3,015 - Changjuk Wind Power Co., Ltd. 4,445 31,349 2,608 8,137 25,049 6,981 3,220 1,938 - 1,938 159 Hyundai Green Industries Co., W.L.L. - 1,774 - - 1,774 - - - (200) (200) - KC LNG Tech Co., Ltd. 6,289 12,767 1,625 - 17,431 27,678 3,619 2,051 - 2,051 - Zvezda-hyundai LLC 2,328 33 - 2,492 (131) - (182) (135) 4 (131) - International Maritime Industries Company 107,140 38,653 62,719 - 83,074 - (24,385) (24,385) (971) (25,356) - W 161,472 208,366 71,762 89,660 208,416 66,796 (9,031) (14,412) (1,167) (15,579) 304

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

11. Investments in Associates, Continued

(3) Changes in equity-method accounted investees for the six-month period ended June 30, 2018 and the year ended December 31, 2017 are summarized as follows:

(In millions of won) 2018 Share of Changes in profit (loss) equity of of equity equity Beginning Acquisition accounted accounted Dividends Other Ending Associates balance (disposal) investees(*2) investees received changes balance

New Korea Country Club W 25,438 - 293 - (145) - 25,586 Taebaek Wind Power Co., Ltd. 7, 11 6 - 689 - (274) - 7,531 Taeback Guinemi Wind Power Co,. Ltd. 4,634 - (24) - - - 4,610 Pyeongchang Wind Power Co., Ltd. 3,806 - 439 - - - 4,245 Changjuk Wind Power Co., Ltd. 11,030 - 925 - (596) - 11,359 KoFC-Partners Pioneer Champ 2011-1 - Investment Fund ------Hyundai Green Industries Co., W.L.L. 869 - - 40 - - 909 Tribridge Capital Management(*1) ------HI ROKI1 Global Robo-advisor Securities Investment Trust ------HI Gold Ocean Kmarin No.8 Ship Investment Company - - 1,416 - (186) (1,230) - HI Korean Model Global Asset Allocation Securities Investment Trust ------KC LNG Tech Co., Ltd. 2,893 - (331) - - - 2,562 Zvezda-hyundai LLC(*1) ------International Maritime Industries Company 8,307 - (1,332) 333 - - 7,308 HHI China Investment Co., Ltd. - 147,733 12,697 4,375 - 164,805 Hyundai Financial Leasing Co., Ltd. - 93,813 3,898 3,022 (1,858) - 98,875 HI-Japan High Dividend Focus Fund - 2,900 332 - - (3,232) - Hi Korea Unification Renaissance Fund - 2,400 (28) - - (2,372) - W 64,093 246,846 18,974 7,770 (3,059) (6,834) 327,790

(*1) Application of equity method was discontinued as book value reduced to nil due to accumulated losses. The unrecognized changes in equity is W173 million. (*2) Share of profit (loss) of equity accounted investees classified to discontinued operations is included.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

11. Investments in Associates, Continued

(3) Changes in equity-method accounted investees for the six-month period ended June 30, 2018 and the year ended December 31, 2017 are summarized as follows, continued: (In millions of won) 2017 Share of Changes in profit (loss) equity of of equity equity Other Beginning Acquisition accounted accounted Dividends changes Ending Associates balance (disposal) investees(*2) investees received (*3,4) balance

New Korea Country Club W 25,294 - 289 - (145) - 25,438 Taebaek Wind Power Co., Ltd. 6,297 - 819 - - - 7, 11 6 Taebaek Guinemi Wind Power Co., Ltd. 4,696 - (62) - - - 4,634 Pyeongchang Wind Power Co., Ltd. 3,112 - 694 - - - 3,806 Changjuk Wind Power Co., Ltd. 10,373 - 816 - (159) - 11,030 TV Chosun - Daesung Win-Win Fund 10,336 - 100 - - (10,436) - KoFC-Partners Pioneer Champ 2011-1 Investment Fund 3,640 (306) 1,070 413 - (4,817) - Qinhuangdao Shouqin Metal Materials Co., Ltd. - 31,633 - (31,633) - - - PT Hyundai Construction Equipment Asia - (147) - 25 - 122 - Hyundai Primorye Ltd. 3,648 - 136 (210) - (3,574) - Hyundai Green Industries Co., W.L.L. 967 - - (98) - - 869 Tribridge Capital Management(*1) - - - 1 - (1) - HI Global Dynamic Asset Allocation Private Securities Investment Trust 1 2,849 (2,802) (47) - - - - HI Global Dynamic Asset Allocation Public Securities Investment Trust 4,956 (1,275) 44 - - (3,725) - HI ROKI1 Global Robo-advisor Securities investment Trust 1,041 1,100 (4) - - (2,137) - HI Gold Ocean Kmarin No.8 Ship Investment Company - 14,134 (1,321) - (264) (12,549) - HI Korean model Global Asset Allocation Securities Investment Trust - 5,000 71 - - (5,071) - KC LNG Tech Co., Ltd. 2,553 - 340 - - - 2,893 Zvezda-hyundai LLC(*1) ------International Maritime Industries Company - 11,206 (2,801) (98) - - 8,307 W 79,762 58,543 144 (31,600) (568) (42,188) 64,093

(*1) Application of equity method was discontinued as book value reduced to nil due to accumulated losses. The unrecognized changes in equity is W73 million. (*2) Share of profit (loss) of equity accounted investees classified to discontinued operations is included. (*3) Transferred amount to the spin-off and non-current assets held for sale is included. (*4) For the year ended December 31, 2017, the Group recognized an impairment loss as a result of the impairment test performed due to an indication of an impairment in a cash-generating unit of HI Investment & Securities Co., Ltd., a subsidiary (See note 17).

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

11. Investments in Associates, Continued

(4) Reconciliation from net assets of the associates to the carrying amount of investments in associates in the Group’s consolidated financial statements as of June 30, 2018 and December 31, 2017 is summarized as follows:

(In millions of won) 2018 Elimination of Percentage Corporate intra-company of the adjustments transactions and Ending Ending Group’s Net (e.g.:goodwill unrealized profits carrying Associates net assets ownership value , etc) and losses Others amount

New Korea Country Club W 31,553 29.00% 9,150 16,436 - - 25,586 Taebaek Wind Power Co., Ltd. 22,426 35.00% 7,849 - (318) - 7,531 Taeback Guinemi Wind Power Co., Ltd. 12,293 37.50% 4,610 - - - 4,610 Pyeongchang Wind Power Co., Ltd. 18,458 23.00% 4,245 - - - 4,245 Changjuk Wind Power Co., Ltd. 25,836 43.00% 11,110 - 249 - 11,359 Hyundai Green Industries Co., W.L.L. 1,854 49.00% 909 - - - 909 KC LNG Tech Co., Ltd. 15,433 16.60% 2,562 - - - 2,562 Zvezda-hyundai LLC (354) 49.00% (173) - - 173 - International Maritime Industries Company 73,084 10.00% 7,308 - - - 7,308 HHI China Investment Co., Ltd. 357,989 40.00% 143,195 10,034 11,576 - 164,805 Hyundai Financial Leasing Co., Ltd. 219,105 41.26% 90,407 8,468 - - 98,875 W 777,677 281,172 34,938 11,507 173 327,790

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

11. Investments in Associates, Continued

(In millions of won) 2017 Elimination of inter-segment Percentage Corporate transactions and of the adjustments unrealized Ending Ending Group’s Net (e.g. : goodwill, profits and carrying Associates net assets ownership value etc.) losses Others amount

New Korea Country Club W 31,041 29.00% 9,002 16,436 - - 25,438 Taebaek Wind Power Co., Ltd. 21,275 35.00% 7,446 - (330) - 7, 11 6 Taebaek Guinemi Wind Power Co., Ltd. 12,357 37.50% 4,634 - - - 4,634 Pyeongchang Wind Power Co., Ltd. 16,546 23.00% 3,806 - - - 3,806 Changjuk Wind Power Co., Ltd. 25,049 43.00% 10,772 - 258 - 11,030 Hyundai Green Industries Co., W.L.L. 1,774 49.00% 869 - - - 869 KC LNG Tech Co., Ltd. 17,431 16.60% 2,893 - - - 2,893 Zvezda-hyundai LLC (131) 49.00% (64) - - 64 - International Maritime Industries Company 83,074 10.00% 8,307 - - - 8,307

W 208,416 47,665 16,436 (72) 64 64,093

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

12. Investments in Joint Ventures

(1) Investments in joint ventures as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won, except percentage of ownership) 2018 2017 Fiscal Ownership Carrying Ownership Carrying Joint ventures Location year end Business (%) amount (%) amount Wärtsilä-Hyundai Engine Korea December Manufacture, ssembly Company Ltd. and test of marine engines and parts 50.00 W 65,710 50.00 W 78,194 BMC Hyundai S.A. Brazil December Sale of machinery equipment for construction - - 30.00 - W 65,710 W 78,194

(*) As of December 31, 2017, the Group’s investment has been reclassified to non-current assets held for sale due to the sale decision of the shares and for the period ended June 30, 2018, the Group completed the selling.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

12. Investments in Joint Ventures, Continued

(2) Condensed financial information of joint ventures as of and for the six-month period ended June 30, 2018 and the year ended December 31, 2017 is summarized as follows: 1) 2018 (i) Summary of financial information

(In millions of won) 2018 Condensed financial information of joint ventures Dividends received from Non- Other Total investments Current Current Current Non-Current Operating comprehen- comprehen- in joint Joint ventures assets assets liabilities liabilities Equity Sales profit Profit sive income sive income ventures Wärtsilä-Hyundai Engine Company Ltd. W 160,644 34,974 62,321 1,866 131,431 115,105 22,078 18,672 - 18,672 21,822

(ii) Additional financial information

(In millions of won) 2018 Cash and cash Current financial Non-current financial Income tax Joint ventures equivalents liabilities liabilities Depreciation Interest income Interest expense expense

Wärtsilä-Hyundai Engine Company Ltd. W 40,073 - - 2,028 667 - 5,354

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

12. Investments in Joint Ventures, Continued

(2) Condensed financial information of joint ventures as of and for the six-month period ended June 30, 2018 and the year ended December 31, 2017 is summarized as follows, continued: 2) 2017 (i) Summary of financial information

(In millions of won) 2017 Condensed financial information of joint ventures Dividends received from Non- Non- Other Total investments Current Current Current Current Operating comprehen- comprehen- in joint Joint ventures assets assets liabilities liabilities Equity Sales income Profit sive income sive income ventures Wärtsilä-Hyundai Engine Company Ltd. W 205,557 36,259 83,547 1,866 156,403 227,506 53,777 43,644 (10) 43,634 13,800

(ii) Additional financial information

(In millions of won) 2017 Cash and cash Current financial Non-current Joint ventures equivalents liabilities financial liabilities Depreciation Interest income Interest expense Income tax expense Wärtsilä-Hyundai Engine Company Ltd. W 30,795 - - 4,208 1,349 - 10,757

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

12. Investments in Joint Ventures, Continued

(3) Changes in equity-method accounted joint ventures for the six-month period ended June 30, 2018 and the year ended December 31, 2017 are summarized as follows:

(In millions of won) 2018 Changes in Share of profit equity of of equity equity Beginning Acquisition accounted accounted Dividends Ending Joint ventures balance (disposal) investees(*2) investees received balance

Wärtsilä-Hyundai Engine Company Ltd. W 78,194 - 9,338 - (21,822) 65,710

(In millions of won) 2017 Share of Changes in profit equity of of equity equity Changes Beginning Acquisition accounted accounted Dividends from Ending Joint ventures balance (disposal) investees(*) investees received spin-off balance

Wärtsilä-Hyundai Engine Company Ltd. W 70,137 - 21,862 (5) (13,800) - 78,194 Hyundai Cosmo Petrochemical Co., Ltd. 149,630 - 17,866 (3,097) - (164,399) - BMC Hyundai S.A.(*1) ------Hyundai and Shell Base Oil Co., Ltd. 154,499 - 14,508 - (30,000) (139,007) - W 374,266 - 54,236 (3,102) (43,800) (303,406) 78,194

(*) Share of profit (loss) of equity accounted investees of W32,374 million from shares classified to discontinued operations is included.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

12. Investments in Joint Ventures, Continued

(4) Reconciliation from net assets of the joint ventures to the carrying amount of investments in joint ventures in the Group’s consolidated financial statements as of June 30, 2018 and December 31, 2017 is summarized as follows: (In millions of won) 2018 Elimination of inter-segment transactions and Ending Ending Owner- unrealized profits carrying Joint ventures net assets ship(%) Net value and losses Other amount

Wärtsilä-Hyundai Engine Company Ltd. W 131,431 50.00 65,716 (6) - 65,710

(In millions of won) 2017 Elimination of inter-segment transactions and Ending Ending Owner- unrealized profits carrying Joint ventures net assets ship(%) Net value and losses Others amount

Wärtsilä-Hyundai Engine Company Ltd. W 156,403 50.00 78,202 (8) - 78,194

13. Joint Operation

The joint operation as of June 30, 2018 and December 31, 2017 is summarized as follows:

Ownership (%) Joint operation Main Office Main business 2018 2017 FDH JV(*1) Kuwait Chemical plant 33.33 33.33 FDH JV(*2) Kuwait Chemical plant 20.00 20.00

(*1) The Group holds a significant joint operation ‘FDH JV’ as of June 30, 2018 and December 31, 2017. FDH JV is a joint operation that the main purpose of an arrangement is a construction of Clean Fuels Project MAB2 EPC PKG ordered by Kuwait National Petroleum Company. The Group recognizes assets and liabilities relating to its interest in the joint operation as well as revenues and expenses relating to its interest in the joint operation. (*2) The Group holds a significant joint operation ‘FDH JV’ as of June 30, 2018 and December 31, 2017. FDH JV is a joint operation that the main purpose of an arrangement is a construction of Al Zour Refinery Project Package 2 & 3 EPC PKG ordered by Kuwait National Petroleum Company. The Group recognizes assets and liabilities relating to its interest in the joint operation as well as revenues and expenses relating to its interest in the joint operation.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

14. Financial assets measured at FVOCI

Financial assets measured at FVOCI as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) 2018 2017 Current Non-current Current Non-current Rented equity securities(*1) W - 7,530 - 7, 5 1 5 Listed equity securities(*1) - 34,800 - 36,769 Unlisted equity securities(*2) - 80,253 - 80,253 Beneficiary certificates - 1,024 - 1,026 Investments in capital and others(*2) - 7,947 - 8,057 W - 131,554 - 133,620

(*1) For the year ended December 31, 2015, the Group issued exchangeable bond that is exchangeable to common stocks of Hyundai Merchant Marine Co., Ltd. which are listed equity securities the parent company holds. The total number of exchangeable stocks at the time of issuance is 3,378,236 shares. For the six-month period ended June 30, 2018, the number of shares to be exchanged decreased to 347,581 shares from 3,378,236 shares due to the repayment of the portion of the exchangeable bonds (USD 198,800 thousand out of USD 221,600 thousand face value) by the exercise of early redemption right. When the exchangeable bond is issued, the Group deposited 3,378,236 shares of Hyundai Merchant Marine Co., Ltd. in Korea Securities Depository. 3,030,655 shares were returned from the Korea Securities Depository in early July 2018 after the end of the reporting period due to the early redemption. As of June 30, 2018, the shares deposited in the Korea Securities Depository are restricted to disposal Should the remaining exchangeable bond be exchanged to common stocks of Hyundai Merchant Marine Co., Ltd. entirely, the percentage of ownership in its investment in Hyundai Merchant Marine Co., Ltd. would decrease to 0.97%. In conjunction with this transaction, the Group entered into an agreement with Merrill Lynch International and The Hong Kong and Shanghai Banking Corporation Limited to lend up to 1,497,024 shares of the common stocks of Hyundai Merchant Marine Co., Ltd. which was previously held by Hyundai Samho Heavy Industries Co., Ltd., one of the Group’s subsidiaries. The number of common stocks Hyundai Samho Heavy Industries Co., Ltd. lent pursuant to this agreement is 1,497,023 shares as of June 30, 2018. According to this stock lending agreement, the stocks lent by Hyundai Samho Heavy Industries Co., Ltd. do not have voting rights and are restricted in disposal. In addition, the fair value of equity securities decreased significantly below the acquisition cost, and an impairment loss of W8,427 million was recognized for the year ended December 31 2017. (*2) Unless otherwise noted, the carrying amounts of unlisted equity securities were recorded at their acquisition cost because the fair values cannot be reliably estimated.

Changes in the six-month period ended June 30, 2018 are mainly derived by acquisition, disposal, and changes in fair value.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

15. Investment Property

Changes in investment property for the six-month period ended June 30, 2018 and the year ended December 31, 2017 are as follows:

(In millions of won) 2018 Land Buildings Total

Beginning balance W 110,255 123,609 233,864 Acquisition and other (82,405) (11,823) (94,228) Depreciation - (2,714) (2,714) Ending balance W 27,850 109,072 136,922 Acquisition cost 27,850 137,867 165,717 Accumulated depreciation - (28,795) (28,795)

(In millions of won) 2017 Land Buildings Total

Beginning balance W 115,243 125,364 240,607 Acquisition and other 7, 1 5 1 4,108 11,259 Depreciation - (5,612) (5,612) Impairment losses(*) (1,504) (251) (1,755) Changes from spin-off (10,635) - (10,635) Ending balance W 110,255 123,609 233,864 Acquisition cost 110,255 157,347 267,602 Accumulated depreciation - (33,738) (33,738)

(*) During the year ended December 31, 2017, the Group recognized an impairment loss as a result of the impairment test performed due to an indication of an impairment in a cash-generating unit of HI Investment & Securities Co., Ltd., a subsidiary. The acquisition cost, accumulated depreciation and accumulated impairment loss of the investment property are replaced with the assets held for sale (See note 17).

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

16. Property, Plant and Equipment

(1) Changes in property, plant and equipment for the six-month period ended June 30, 2018 and the year ended December 31, 2017 are as follows:

(In millions of won) 2018 Machinery and Construction Land Buildings Structures equipment in-progress Others Total

Beginning balance W 5,066,018 2,378,986 1,691,344 1,028,839 179,380 701,689 11,046,256 Acquisitions and other (152,752) 4,865 4,940 48,153 39,719 7, 7 6 2 (47,313) Disposals (2,550) (8,810) (3,426) (20,077) (14,645) (11,028) (60,536) Depreciation - (33,909) (27,796) (64,235) - (58,047) (183,987) Effect of changes in exchange rates (476) (1,261) 3,439 (410) 26 591 1,909 Effects of changes in scope of consolidation (479) (73,680) (5,790) (15,867) (6) (3,114) (98,936) Ending balance W 4,909,761 2,266,191 1,662,711 976,403 204,474 637,853 10,657,393

Acquisition cost 4,909,761 3,369,132 2,551,727 4,399,955 204,661 2,521,639 17,956,875 Government grants - (2,088) (21) (902) - (193) (3,204) Accumulated depreciation - (1,054,342) (844,736) (3,225,911) - (1,881,410) (7,006,399) Accumulated impairment - (46,511) (44,259) (196,739) (187) (2,183) (289,879)

(In millions of won) 2017 Machinery and Construction Land Buildings Structures equipment in-progress Others Total

Beginning balance W 6,862,059 3,260,763 2,924,924 4,270,700 374,475 1,036,319 18,729,240 Acquisitions and other (5,194) (41,945) 41,648 22,256 127,876 103,695 248,336 Disposals (44,740) (26,385) (11,488) (10,417) (244) (6,617) (99,891) Depreciation - (86,380) (68,293) (219,576) - (153,318) (527,567) Impairment loss(*) (20,724) (93,008) (46,767) (144,916) (2,373) (15,755) (323,543) Effect of changes in exchange rates (1,456) (24,204) (13,354) (9,537) (904) (6,544) (55,999) Effects of changes in scope of consolidation (29,250) (127,601) (6,057) (14,783) (410) (7,848) (185,949) Changes from spin-off (1,694,677) (482,254) (1,129,269) (2,864,888) (319,040) (248,243) (6,738,371) Ending balance W 5,066,018 2,378,986 1,691,344 1,028,839 179,380 701,689 11,046,256 Acquisition cost 5,067,434 3,474,460 2,554,909 4,480,736 181,737 2,578,353 18,337,629 Government grants (1,416) (3,549) (1,731) (938) - (220) (7,854) Accumulated depreciation - (1,045,414) (817,741) (3,255,312) - (1,874,235) (6,992,702) Accumulated impairment - (46,511) (44,093) (195,647) (2,357) (2,209) (290,817)

(2) Construction-in-progress is related to the construction of Ihwa Industrial Park and others as of June 30, 2018.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

16. Property, Plant and Equipment, Continued

(3) Leased assets The Group uses machines under finance lease and accounts as finance lease according to terms of the contract. Leased assets are pledged as collaterals for lease liabilities, and details of leased assets as of June 30, 2018 and December 31, 2017 are as follows:

(In millions of won) 2018 2017

Machinery W 24,657 47,075 Accumulated depreciation (1,027) (4,373) Book value W 23,630 42,702

(4) Land revaluation The Group applied revaluation model on land and revalued land by using the value which independent and expertise appraisal institution appraised as of June 30, 2016. The appraisal institution valued land price based on the publicly assessed land price with adjustments and reviewed reasonableness of revaluation amount by comparing appraisal results with the estimated price based on recent market transactions among the independent third parties.

Book values of land assessed by revaluation model and cost model as of June 30, 2018 are as follows:

(In millions of won) 2018 Revaluation model Cost model Land W 5,005,388 3,197,174

Accumulated revaluation surplus from revaluation on land recognized as other comprehensive income up to June 30, 2018 is W1,293,980 million (net of tax effects), and accumulated loss to land after revaluation is W36,254 million. Also, for the six-month period ended June 30, 2018, a part of revaluation surplus of W20,081 million was reclassified to retained earnings as a result of partial disposal.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

16. Property, Plant and Equipment, Continued

(5) Fair value measurement The measured fair value of land is classified into level 3 fair value based on the input variables used in the valuation techniques. The valuation method and input variables which are used for fair value mesurements of land are as follows: Significant but Valuation unobservable input Correlation between the main unobservable variable method variables and fair value Publicly Time adjustment (Rate of If the flexibility of land value increases (decreases), then assessed changes in land value) fair value increases (decreases). land price Regional contribution If regional contribution increases (decreases), then fair value increases (decreases).

Individual contribution If the adjusted value of terms of residential lot and others increases (decreases), then fair value increases (decreases).

Other contributions If the adjusted value of the level of land value and others increases (decreases), then fair value increases (decreases).

17. Intangible Assets

(1) Changes in goodwill for the six-month period ended June 30, 2018 and the year ended December 31, 2017 are as follows: (In millions of won) 2018 2017

Beginning balance W 13,141 1,249,524 Impairment losses - (148,964) Changes from spin-off - (1,087,419) Ending balance W 13,141 13,141 Acquisition cost 13,141 13,141 Accumulated impairment - -

Details of goodwill as of June 30, 2018 and December 31, 2017 are as follows: (In millions of won) 2018 2017

Hyundai Samho Heavy Industry Co., Ltd. W 13,141 13,141 HI Investment & Securities Co., Ltd. and its subsidiaries - - W 13,141 13,141

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

17. Intangible Assets, Continued (1) Changes in goodwill for the six-month period ended June 30, 2018 and the year ended December 31, 2017 are as follows, continued: For the year ended December 31, 2017, the Group performed an impairment test as there was an indication of impairment in its subsidiaries, HI Investment & Securities Co., Ltd., and assessed recoverable amounts of their cash-generating units. The recoverable amounts of the cash-generating units were measured based on fair value less costs to sell. As a result of the impairment test, the Group recognized impairment losses in HI Investment & Securities Co., Ltd., and their details are as follows:

(In millions of won) HI Investment & Securities Co., Ltd.

Goodwill W 148,964 Investment in associates 28,300 Investment property 1,755 Property, plant and equipment 17,954 Intangible assets 26,071 Other assets 81,611 W 304,655

Impairment losses from cash-generating units are allocated to goodwill first, and residual impairment losses are allocated to other assets in proportion to each asset’s book value.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

17. Intangible Assets, Continued

(2) Changes in development costs, networks and other intangible assets for the six-month period ended June 30, 2018 and the year ended December 31, 2017 are as follows:

(In millions of won) 2018 Development costs Other intangible assets Total

Beginning balance W 50,626 41,676 92,302 Acquisition and other 1,202 927 2,129 Disposals (105) (202) (307) Amortization (10,255) (398) (10,653) Impairment loss (19) - (19) Effect of changes in exchange rates - (7) (7) Ending balance(*) W 41,449 41,996 83,445 Acquisition cost 442,975 63,144 506,119 Accumulated amortization (381,880) (19,388) (401,268) Accumulated impairment (19,646) (1,760) (21,406)

(In millions of won) 2017 Other Development Customer Know- intangible costs Networks relationships Brands how assets Total

Beginning balance W 275,185 69,627 31,873 192,220 28,868 115,189 712,962 Acquisition and other 17,694 - - - - (3,499) 14,195 Disposals (11,946) - - - - (5,075) (17,021) Amortization (39,811) (1,281) (3,085) - (753) (4,133) (49,063) Impairment loss (7,711) - - - - (27,444) (35,155) Effect of changes in exchange rates (156) - - - - (530) (686) Effects of changes in scope of consolidation - - - - - (961) (961) Changes from spin-off (182,629) (68,346) (28,788) (192,220) (28,115) (31,871) (531,969) Ending balance(*) W 50,626 - - - - 41,676 92,302 Acquisition cost 446,271 - - - - 64,745 511,016 Accumulated amortization (375,849) - - - - (21,338) (397,187) Accumulated impairment (19,796) - - - - (1,731) (21,527)

The carrying amount of intangible assets with indefinite useful lives is W31,187 million and W29,795 million as of June 30, 2018 and December 31, 2017, respectively.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

17. Intangible Assets, Continued

(3) Impairment of assets (i) For the six-month period ended June 30, 2018, W19 million impairment loss was recognized from the development cost for the discontinued development projects.

(ii) For the six-month period ended June 30, 2017, the Group performed an impairment test as there was an indication of impairment in its subsidiaries, HI Investment & Securities Co., Ltd. and Hotel Hyundai Co., Ltd., and assessed recoverable amounts of their cash-generating units. The recoverable amounts of the cash- generating units were measured based on fair value less costs to sell. As a result of the impairment test, the Group recognized impairment losses in HI Investment & Securities Co., Ltd. and Hotel Hyundai Co., Ltd., and their details are as follows:

(In millions of won) HI Investment & Securities Co., Ltd. Hotel Hyundai Co., Ltd.

Goodwill W 144,946 - Investment in associates 21,705 - Investment property 1,286 - Property, plant and equipment 19,091 60,538 Intangible assets 25,562 301 Other assets 70,299 387 W 282,889 61,226

Impairment losses from cash-generating units are allocated to goodwill first, and residual impairment losses are allocated to other assets in proportion to each asset’s book value.

For the six-month period ended June 30, 2017, W1,457 impairment loss was recognized from development cost for the discontinued development projects.

18. Pledged Assets

(1) Assets pledged as collateral for the Group’s borrowings as of June 30, 2018 are summarized as follows:

(In millions of won) Carrying Collateralized Borrowings Assets amount amount Type of borrowings amount Lender

Land and buildings W 66,091 76,919 Long-term borrowings 18,142 Kookmin Bank The Korea Exchange The Korea Securities 11,997 10,000 Secured loans - stock(*) Finance Corporation

W 78,088 86,919 18,142 (*) It is included in assets held for sale.

(2) The Group receives payment guarantees from financial institutions for advance payments on ships as of June 30, 2018. Regarding these guarantees, the Group provides its ships under construction and materials for construction as collaterals (See note 44).

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

18. Pledged Assets, Continued

(3) As of June 30, 2018, the Group has provided as collaterals among the assets that are held for sale W3,513,788 million of financial assets measured at FVTPL (including accrued interest), W192,039 million of borrowed securities, W83,776 million of financial assets measured at FVOCI for loan transactions, warranty for derivative instruments and others to Korea Exchange and others.

19. Short-term and Long-term Financial Liabilities

Short-term and long-term financial liabilities as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) 2018 2017 Current Non-current Current Non-current a Borrowings W 2,409,502 702,837 3,453,908 832,219 Held-for-trading liabilities - - 5,774 7,817 Financial liabilities measured at FVTPL 564 5,956 - - Debentures - 65,000 330,000 65,000 Discount on debentures - (98) (169) (138) Exchangeable bond 25,575 - 237,422 - Discount on exchangeable bond (111) - (1,283) - Exchange rights adjustment (1,613) - (18,574) - Convertible preference share - 400,000 - 400,000 Finance lease liabilities 8,183 10,672 15,710 16,766 W 2,442,100 1,184,367 4,022,788 1,321,664

20. Trade and Other Payables

Trade and other payables as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) 2018 2017 Current Non-current Current Non-current

Trade payables W 1,409,201 - 1,365,390 - Other accounts payable 636,790 - 685,465 - Accrued expense 692,568 - 944,589 - Deposits received - 9,356 - 9,993 W 2,738,559 9,356 2,995,444 9,993

21. Other Liabilities

Other liabilities as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) 2018 2017 Current Non-current Current Non-current

Unearned revenues W 5,508 - 24,283 - Others 188 - 346 141 W 5,696 - 24,629 141

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

22. Borrowings and Debentures

(1) Short-term borrowings as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) Annual Type of borrowing Lender interest rate (%) 2018 2017

General loan The Korea Development Bank and others 3.45~3.87 W 435,100 450,000 Commercial paper Yuanta Securities Korea Co., Ltd. 4.70 50,000 50,000 Invoice Loan Mizuho Bank, Ltd. and otehrs 1.00~3.68 6,856 111,443 Import loan Bank of China and others 3.29 40,196 27,372 Usance L/C KEB Hana Bank and others 0.13~3.23 608,717 621,302 Coexistence Export-Import Bank of cooperation loan Korea 3.48~3.67 107,000 293,114 Pre-shipment credit Export-Import Bank of Korea 3.15~3.70 600,000 1,192,500 Electric short-term Shinyoung Securities Co., Ltd. bond 3.05 180,000 - Loan in foreign KEB Hana Bank and others LIB(3M)+2.35% currency ~TJLP+2.8% 39,270 72,402 2,067,139 2,818,133 Current portion of long-term borrowings 342,363 635,775 W 2,409,502 3,453,908

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

22. Borrowings and Debentures, Continued

(2) Long-term borrowings as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) Annual Type of borrowing Lender interest rate (%) 2018 2017

General loan Standard Chartered Bank and others 3.50~3.90 W 316,497 653,601 General loan in foreign Bank of China and currency others 3.98~4.61 459,897 385,704 National Housing Fund Kookmin Bank 2.30 18,142 20,540 Business loans(*) Korea National Oil Corporation 0.75~3.75 9,014 8,610 Pre-shipment credit Export-Import Bank of Korea 3.65 200,000 300,000 Loan in foreign currency Export-Import Bank of LIB(3M)+2.07~ Korea and others 2.08, Dollar exchange rate+1.8%+ECM 41,650 99,539 W 1,045,200 1,467,994 Current portion of long-term borrowings (342,363) (635,775) Non-current portion of long-term borrowings W 702,837 832,219

(*) During 2013, the consortium that included the Group decided to withdraw from its oil development business in the 4 mining areas in Yemen and Kazakhstan mining development business through sale of shares. The repayment schedules of business loans (W9,014 million and W8,610 million as of June 30, 2018 and December 31, 2017, respectively) from Korea National Oil Corporation are not readily determinable since the decision on the redemptions of these business loans is still being deliberated by the supervisory institution.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

22. Borrowings and Debentures, Continued

(3) Debentures as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) Annual interest rate Description Maturity (%) 2018 2017 Guarantee

121th debenture 2019-09-06 3.50 W 65,000 65,000 Unsecured bond 2nd -2 debenture 2018-04-22 2.75 - 230,000 Unsecured bond 9th -2 debenture 2018-06-25 2.92 - 100,000 Unsecured bond 65,000 395,000 Discount on debentures (98) (307) Current portion of debentures - (330,000) Discount on current portion of debentures - 169

W 64,902 64,862

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

22. Borrowings and Debentures, Continued

(4) Exchangeable bond

(i) Exchangeable bond as of June 30, 2018 and December 31, 2017 is summarized as follows: (In millions of won) Annual interest rate Description Maturity (%) 2018 2017 Guarantee

1st Exchangeable bond 2020-06-29 - W 25,575 237,422 Secured debenture

Discount on exchangeable bond (111) (1,283) Exchange rights adjustment (1,613) (18,574)

W 23,851 217,565

As of December 31,2017, the Group has classified these exchangeable bond as current liabilities as early redemption rights can be exercised, within one year. For the six-month period ended June 30, 2018, The repayment has been completed with an early redemption rights of USD 198,800 thousand of USD 221,600 thousand par value.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

22. Borrowings and Debentures, Continued

(4) Exchangeable bond, Continued (ii) Conditions of issuance of the exchangeable bond above is as follows:

Description Type of debenture……………………………. 1st secured foreign currency denominated exchangeable bond in foreign public offering Total face value of debenture (USD)……….. 221,600,000 The name of overseas listing market………. Singapore Stock Exchange Interest rate of debenture Par interest rate (%)………………………… 0.00 Interest rate of maturity (%)……………….. 0.00 Maturity of debenture……………………….. 2020.06.29 Interest payment method…………………… No interest payments Principal redemption method……………….. Redemption at maturity: Lump sum redemption of principal and interest at maturity only if reasons for early redemption don’t occur, and exchange rights aren’t exercised until maturity Early redemption: There are the Group’s early redemption right (Call option) and investors’ early redemption right (Put option) Issue method of debenture…………………. Private Placement Details of exchange Exchange rate (%)………………………….. 100.00 Exchange price (in USD per share)……….. 66.2669 (9.4667 before capital decrease) Determination method of exchange price... The amount is determined by complying with ‘Regulations on securities issuance and disclosure article 5-22 (decision of conversion price of conversion bonds)’ and adding the exchange premium of 37.50% to the closing price of the Korea Exchange listed stocks at the time of exchange price is fixed Exchange object……………………………. Common stocks of Hyundai Merchant Marine Co., Ltd. Exercise period Start date…………………………………. 2015.08.10 End date…………………………………... 2020.06.18 Adjustments to exchange price…………… The amount is adjusted according to the terms and conditions of the debentures, in the event of a dilution reason such as stock split, share consolidation, change of par value, paid-in capital increase, issuance of additional stocks, company reorganization procedure, stock dividends and others Guarantee institutions………………………. The Korea Development Bank Investors’ early redemption right The early redemption rights can be exercised when following events occur (Put Option)…………………………………. - After three years from the date of payment (2018.6.29) - If change in control of the company has occurred - If stocks which Hyundai Merchant Marine Co., Ltd. issued are delisted or the trading is halted for more than 30 consecutive trading days

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

22. Borrowings and Debentures, Continued

(4) Exchangeable bond, continued (ii) Conditions of issuance of the exchangeable bond above is as follows:, continued

Description The Parent company’s early redemption The early redemption is possible when following events occur right - From 3 years after the date of payment (2018.6.29) to 30 business days prior to maturity, (Call Option)……………………………….. 20 trading days closing price of 30 trading days exceeds 130% of the exchange price - If the balance of outstanding debentures is less than 10% of the total issued amount (Clean Up Call) - If the additional tax burden by amendments of the relevant laws and others has occurred Share lending agreement…………………… Hyundai Samho Heavy Industries Co., Ltd. has procured a lender under a share lending agreement to transfer to the initial purchase a certain number of the shares, subject to the terms of such share lending agreement. - Purpose: Derivative transactions - The number of stocks: 1,497,024 (it can lend up to 50% of the number of lending stocks per borrowers) - Lender: Hyundai Samho Heavy Industries Co., Ltd. - Borrowers: Merrill Lynch International, The Hong Kong and Shanghai Banking Corporation Limited - Loan conditions: Until 5 years after issuance of exchangeable bond or the date of all redemption or all exchange of exchangeable bond, borrowers can borrow the number of stocks that they want within the limit of lending stocks (designated transaction method through Mirae Asset Daewoo Co., Ltd.) - Redemption method: The same type of stocks - Connectivity of exchangeable bond issuance: Loan stocks are common stocks of Hyundai Merchant Marine Co., Ltd. - Loan charges: Annual 1.0%

(iii) Characteristics of the exchange rights, investors’ and the Group’s early redemption rights given to the above exchangeable bonds are not closely related to economic specifics and risks of the host contract; therefore, they are classified as embedded derivative instruments separately from the host contract. Thus, the Group recorded a financial liability at fair value through profit or loss of W564 million, which is the value of the exchange rights and others as of June 30, 2018. The Group measures the fair value at each ending periods and records any gain/loss on valuation in profit or loss.

(iv) On August 2018, the early redemption right of the outstanding balance of exchangeable bond (face value USD 22,800 thousand) as of June 30, 2018 was exercised, and the Parent Company fully paid off on August 3, 2018.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

22. Borrowings and Debentures, Continued

(5) Convertible preference share (i) Convertible preference share as of June 30, 2018 and December 31, 2017 is summarized as follows:

(In millions of won) Annual interest rate Description Issue (%) 2018 2017

Convertible preference share 2017.07.27 2.00 W 400,000 400,000

(ii) Conditions of issuance of the convertible preference share above as follows

Description Issuer…………...……………………………. Hyundai Samho Heavy Industries Co., Ltd Type of issued shares.....……………………. Dividend preference convertible shares with voting rights The principal of investment/ Quantity of shares……………………………………….. W400,000 million / 7,142,858 shares Issue date…………………………………….. 2017.07.27 Voting right……………………………………. One share has one voting right Dividend………………………………………. Cumulative, participating preferred stock with voting rights. Ratio of preferred dividend is 2.00% per year of principal of investment and method of dividend is cash dividend. Conversion condition………………………… (a) Investors have a right of claim to convert whole or partial preference shares to common shares by submit of requisition of conversion to Hyundai Samho Heavy industries Co., Ltd., during period of conversion. (b) Common shares calculated by multiply shares which conversion rights were exercised by conversion ratio (principal of share/ conversion price) and round down to the nearest whole number of shares. (c) Conversion price is principal price of common stock which will be issued by exercising conversion right. However, in case of merger, spin-off, stock split or reverse of stock split, conversion ration shell be adjusted, in order that investor achieve equal value of common stocks which investor could gain if conversion right exercised right before the merger, spin-off, stock split or reverse of stock split.

Issuable shares by exercising conversion right…………………………………………. Common stock Issuable shares by exercising conversion right…………………………………………. 7,142,858 shares Commitments between shareholders and financial commitments……...... The Parent Company enter into contract with investor, main contents are as follows: (a) Designation of director Investor could designate one non-executive director of Hyundai Samho Heavy industries Co., Ltd. (b) Granted right to purchase shares (put option) In the event that the specific condition is not satisfy in commitments, investor could exercise a right of claim to purchase to the Parent Company or third party designated by the Parent Company.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

22. Borrowings and Debentures, Continued

(6) Aggregate repayment schedules of the Group’s borrowings and debentures as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) 2018 Convertible Exchangeable preference Periods Borrowings Debentures bond(*) share Total

2018.07.01~2019.06.30 W 2,409,502 - - - 2,409,502 2019.07.01~2023.06.30 702,837 65,000 25,575 400,000 1,193,412 W 3,112,339 65,000 25,575 400,000 3,602,914

(*) Cash flows are assumed to be redeemed by maturity.

(In millions of won) 2017 Convertible Exchangeable preference Periods Borrowings Debentures bond(*) share Total

2018.01.01~2018.12.31 W 3,453,908 330,000 - - 3,783,908 2019.01.01~2022.12.31 832,219 65,000 237,422 400,000 1,534,641 W 4,286,127 395,000 237,422 400,000 5,318,549

(*) Cash flows are assumed to be redeemed by maturity.

(7) Details of newly issues and repayments of liabilities for the six-month period ended June 30, 2018 are as follows:

(In millions of won) Convertible Finance Exchangeable preference lease Borrowings Debentures bond share liabilities Total

Beginning balance W 4,286,127 394,693 217,565 400,000 32,475 5,330,860 Cash flows from Borrowing 1,855,611 - - - - 1,855,611 financing activities Repayment (2,989,204) (330,000) (212,994) - (13,620) (3,545,818) Non-cash flows Effect of movements in exchange rates 47,660 - 1,050 - - 48,710 Amortization of discounts on debentures - 209 266 - - 475 Amortization of conversion rights adjustment - - 3,774 - - 3,774 Effects of changes in scope of consolidation (87,855) - - - - (87,855) Others - - 14,190 - - 14,190 Ending balance W 3,112,339 64,902 23,851 400,000 18,855 3,619,947

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

23. Finance Lease Liabilities

(1) Total minimum lease payments and present value of finance lease liabilities as of June 30, 2018 and December 31, 2017 are as follows:

(In millions of won) 2018 Minimum lease Periods payments Interest expense Present value 2018.07.01~2019.06.30 W 8,755 (572) 8,183 2019.07.01~2023.06.30 10,943 (271) 10,672 W 19,698 (843) 18,855

(In millions of won) 2017 Minimum lease Periods payments Interest expense Present value 2018.01.01~2018.12.31 W 16,684 (975) 15,709 2019.01.01~2022.12.31 17,302 (536) 16,766 W 33,986 (1,511) 32,475

(2) There are no accrued contingent rents incurred for the lease above during the six month period ended June 30, 2018.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

24. Employee Benefits

(1) Recognized liabilities for defined benefit obligations as of June 30, 2018 and December 31, 2017 are as follows:

(In millions of won) 2018 2017

Present value of defined benefit obligations W 959,200 998,543 Fair value of plan assets(*) (858,811) (861,907) W 100,389 136,636

(*) Certain subsidiaries plan assets exceed the present value of defined benefit obligations in the amount of W23,111 million and W38,441 million as of June 30, 2018 and December 31, 2017. Such amounts were recognized as plan assets (in other non-current assets). The fair value of plan assets included such amounts of W881,922 million and W900,348 million as of June 30, 2018 and December 31, 2017.

(2) Plan assets as of June 30, 2018 and December 31, 2017 are as follows:

(In millions of won) 2018 2017

Retirement pension W 878,596 896,983 Transfer to National Pension Fund 3,326 3,365 W 881,922 900,348

(3) Expenses recognized in profit or loss for the six-month periods ended June 30, 2018 and 2017 are as follows:

(In millions of won) 2018 2017(*) Three-month Six-month Three-month Six-month period period period period

Current service costs W 28,023 57,736 34,127 79,381 Past service costs (28,642) (28,642) (11) (11) Interest on obligations 6,894 13,733 6,642 15,669 Expected return on plan assets (6,929) (13,678) (5,701) (13,806) Contributions to a defined contribution plan - - 148 302 W (654) 29,149 35,205 81,535

(*) Includes profit or loss classified as discontinued operations.

The Group introduced a voluntary retirement for the six-month periods ended June 30, 2018 and 2017 and recorded additional retirement benefits of W68,402 million and W12,760 million, respectively.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

24. Employee Benefits, Continued

(4) Changes in defined benefit obligations for the six-month period ended June 30, 2018 and the year ended December 31, 2017 are as follows:

(In millions of won) 2018 2017

Beginning balance W 998,543 1,476,968 Current service costs 57,736 151,859 Past service costs (28,642) (32,120) Interest on obligations 13,733 30,839 Retirement benefits paid (64,853) (218,092) Transfers from related parties 211 3,486 Effect of changes in exchange rates 114 (402) Actuarial losses (gains) in other comprehensive income: Demographic assumptions - - Financial assumptions (12,404) (19,907) Experience adjustments (5,238) (11,844) Effects of changes in scope of consolidation - (14,557) Changes from spin-off - (333,116) Substitution of held for sale - (34,571) Ending balance W 959,200 998,543

(5) Changes in the plan assets for the six-month period ended June 30, 2018 and the year ended December 31, 2017 are as follows:

(In millions of won) 2018 2017

Beginning balance W 900,348 1,237,962 Retirement benefits paid (56,981) (183,236) Contributions to plan assets 30,113 173,026 Expected return on plan assets 13,678 25,438 Actuarial gains (losses) in other comprehensive income (5,236) (8,080) Effects of changes in scope of consolidation - (12,619) Changes from spin-off - (298,232) Substitution of held for sale - (33,911) Ending balance W 881,922 900,348

The Group reviews the level of the fund every year and takes the policy to preserve fund in the event of a loss to the fund.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

25. Provisions

(1) Short-term Provisions Changes in Short-term provisions for the six-month period ended June 30, 2018 and the year ended December 31, 2017 are as follows:

(In millions of won) 2018 Provision for construction losses

Beginning balance W - Adjustment on initial application of K-IFRS 1115 (*) 1,370,224 Adjusted beginning balance 1,370,224 Increase 486,895 Decrease (610,168) Effect of changes in exchange rates 1,469 Ending balance W 1,248,420

(*) Among provision for contract losses of due from customers for contract work and due to customers for contract work as of December 31, 2017 impairment loss is pre-recognized in related assets, and the remaining amount is reclassified.

(In millions of won) 2017 Provisions related to Greenhouse gas emission debt

Beginning balance W 5,331 Increase - Decrease (1,098) Changes from spin-off (4,233) Ending balance W -

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

25. Provisions, Continued

(2) Long-term provisions Changes in long-term provisions for the six-month period ended June 30, 2018 and the year ended December 31, 2017 are as follows:

(In millions of won) 2018 Provision for Provision for construction product Other warranty warranty provision Total

Beginning balance W 752,320 77,202 14,968 844,490 Additions 34,940 10,460 23,756 69,156 Reversals (19,696) (9,697) (5,767) (35,160) Utilization (34,337) (14,302) (5,000) (53,639) Effect of changes in exchange rates 306 (12) (185) 109 Effects of changes in scope of consolidation - (1,009) - (1,009) Ending balance W 733,533 62,642 27,772 823,947

(In millions of won) 2017 Provision for Provision for construction product Other warranty warranty provision Total

Beginning balance W 604,483 299,159 28,650 932,292 Additions 413,553 58,593 31,140 503,286 Reversals (123,689) (16,105) (4,109) (143,903) Utilization (139,156) (38,918) (18,010) (196,084) Effect of changes in exchange rates (834) (2,079) (1,064) (3,977) Effects of changes in scope of consolidation - (4,806) (3,880) (8,686) Changes from spin-off (2,037) (207,288) (6,649) (215,974) Substitution of held for sale - (11,354) (11,110) (22,464) Ending balance W 752,320 77,202 14,968 844,490

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

26. Derivative Financial Instruments

The Group has entered into derivative instrument contracts with various banks, including KEB Hana Bank, to hedge the risk related to changes in foreign exchange rates, interest rate risk, crude oil prices and others. Derivatives are measured at fair value by using the forward exchange rate presented by contract counterparty and others. Also, the Group measured the exchange right given to the exchangeable bond at fair value as it meets the definition of an embedded derivative instrument which needs to be separated from the host contract.

(1) The description of derivative instrument and hedge accounting is as follows:

Hedge accounting Type Description

Fair value hedge Foreign currency (i) Hedges the risk of changes in the fair value of firm forward commitments (ii) Hedges the risk of changes in foreign currency exchange rate for payables in foreign currency Foreign currency Hedges the risk of changes in foreign currency on off- futures shore fund Cash flow hedge Foreign currency Hedges the variability in cash flows attributable to forward foreign currency exposure in respect of forecasted sales and purchases Foreign currenct Hedges cash flow risk on interest rate fluctuation and swap changes in exchange rates of foreign currency liabilities

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

26. Derivative Financial Instruments, Continued

(2) Terms of derivative contracts as of June 30, 2018 are as follows:

(In millions of won and in thousands of foreign currency) Currency Contract Weighted average Average Number of Description Type Sell Buy amount exchange rate maturities contracts

Fair value Foreign currency USD KRW 5,228,118 1,075.39 2019-05-01 3,230 hedge forward EUR KRW 71,303 1,362.58 2020-05-20 19 Foreign currency futures USD KRW 2,000 1,114.60 2018-07-13 1 Cash flow Foreign currency forward KRW EUR 219 1,566.74 2018-08-14 1 hedge USD EUR 55,127 0.79 2019-03-21 14 KRW GBP 29,711 1,475.25 2019-01-22 13 Foreign currency swap KRW USD 106,870 1,068.70 2021-02-26 1 For trading Foreign currency forward USD KRW 28,280 1,076.50 2018-11-09 2 Foreign currency futures KRW USD 7,379 1,116.33 2018-07-16 662 USD KRW 61,260 1,121.70 2018-07-16 5,984 Foreign currency swap USD KRW 25,997 1,164.00 2021-03-08 1 Interest rate swap KRW KRW 350,000 - 2018-12-07 10 Interest rate futures KRW KRW 1,051,753 - 2018-09-18 9,042 USD USD 26,864 - 2018-08-31 150 Index futures KRW KRW 118,063 - 2018-09-13 2,968 HKD HKD 75,744 - 2018-07-30 123 JPY JPY 22,290 - 2018-09-13 1 EUR EUR 4,729 - 2018-12-21 140 Index option KRW KRW 151 - 2018-08-08 6,561 HKD HKD 107,053 - 2019-12-30 4,303 JPY JPY 51,125 - 2019-12-12 97 EUR EUR 2,609 - 2020-12-18 3,833 Commodity futures USD USD 3,097 - 2018-08-25 48 Exchange rights to KRW KRW

exchangeable bond 25,575 - 2020-06-18 1 Call option for common KRW KRW

stock(*) 14,431 - 2020-09-24 1 Put option for common stock(*) KRW KRW 11,100 - 2020-09-24 1 Others KRW KRW 188,147 - 2021-01-16 81

(*) The Group has entered into a share option agreement with Korea Yakult Co., Ltd (hereinafter, “Investor") for 1,967,387 shares (acquisition price : W31,675 million) of Curexo, Inc (See note 44).

※ Terms of settlement: Netting the settlement or collecting total ※ The contract amount is denominated in the selling currency.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

26. Derivative Financial Instruments, Continued

(3) Book value related to derivatives as of June 30, 2018 is as follows:

(In millions of won)

Financial assets or liabilities at fair value

Derivatives through profit or loss Firm commitment Assets Liabilities Assets Liabilities Assets Liabilities Non- Non- Non- Non- Non- Non- Description Type Current current Current current Current current Current current Current current Current current

Fair value hedge Foreign currency forward W 15,620 5,399 125,577 46,898 - - - - 107,021 46,821 23,090 5,399 Cash flow hedge Foreign currency forward 25 - 3,073 845 ------Foreign currency swap - 9,501 ------For trading Exchange rights to exchangeable bond ------564 - - - - - Call option for common stock ------5,956 - - - - Put option for common stock - - - - - 1,263 ------W 15,645 14,900 128,650 47,743 - 1,263 564 5,956 107,021 46,821 23,090 5,399

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

26. Derivative Financial Instruments, Continued

(4) Gain and loss on valuation and transaction of derivatives for the six-month period ended June 30, 2018 are as follows:

(In millions of won) Other non- Other non- Accumulated other Finance Finance operating operating comprehensive Description Type Sales Cost of sales income costs income expenses income (loss)

Fair value hedge Foreign currency forward W 9,091 - 12,426 232,924 220,471 5,762 - Cash flow hedge Foreign currency forward - (77) - - - - (3,356) Foreign currency swap - - 5,300 - - - 4,201 For trading Foreign currency forward - - 1,930 4,019 - - - Exchange rights to exchangeable bond - - 5,210 - - - - Call option for common stock - - 1,860 - - - - Put option for common stock - - 150 - - - - preemptive right to new stocks - - 363 - - - - W 9,091 (77) 27,239 236,943 220,471 5,762 845 As of June 30, 2018, the Group applies cash flow hedge accounting, for which the Group accounted for the effective portion of the hedge amounting to W620 million, net of tax effect of W225 million, as gain on valuation of derivatives in other comprehensive income. It is composed of controlling interest portion of W620 million.

The expected period of exposure to cash flow risk, where cash flow hedge accounting is applied, is approximately 37 months.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

27. Capital and Capital Surplus

(1) Capital stock The Group is authorized to issue 160,000,000 shares of capital stock (par value W5,000), and as of June 30, 2018, the number of issued common shares is 69,165,426. The capital increase amounted to W62,500 million (12,500,000 shares) due to the capital increase for the six-month periods ended June 30, 2018.

(2) Capital surplus Capital surplus is comprised of paid-in capital in excess of par value, capital surplus related to acquisition or disposal of interests in subsidiaries and investments in associates, and other capital surplus of the Group. Other capital surplus of the Group is derived from various sources including gains arising from previous business combination, gains on disposal of treasury stocks, and others. Capital surplus is only available for the reduction of accumulated deficit or transfer to capital stock.

(i) Capital surplus as of June 30, 2018 and December 31, 2017 is summarized as follows:

(In millions of won) 2018 2017

Paid-in-capital in excess of par value W 1,806,416 628,780 Gains on disposal of treasury stocks 357,294 357,294 Gains from merger 21,830 21,830 Other capital surplus 41,992 41,992 W 2,227,532 1,049,896

(ii) Changes in capital surplus for the six-month period ended June 30, 2018 and the year ended December 31, 2017 are as follows:

(In millions of won) 2018 2017

Balance W 1,049,896 1,124,896 Changes from spin-off - (214,544) Gain on disposal of treasury stocks - 139,544 Increased paid-in capital 1,177,636 - Ending balance W 2,227,532 1,049,896

(3) Dividends There is no dividend that the parent company decided to pay out through a resolution of the shareholders’ general meeting for the six-month periods ended June 30, 2018 and 2017.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

28. Hybrid Bonds

(1) Hybrid bond issued by the Parent Company

(i) Hybrid bonds classified as capital as of June 30, 2018 and December 31, 2017 are as follows:

(In millions of won) Annual Description Issue Maturity interest rate (%) 2018 2017

1 st -1 Hybrid bond 2014-12-15 2044-12-15 4.90 W 360,000 360,000 1 st -2 Hybrid bond 2014-12-15 2044-12-15 4.80 70,000 70,000 430,000 430,000 Issuance costs (1,411) (1,411) W 428,589 428,589

(ii) Terms and conditions of the hybrid bonds issued as of June 30, 2018 are as follows:

(In millions of won) 1 st -1 Hybrid bond 1 st -2 Hybrid bond Amount Issued 360,000 70,000 Maturity 30years (At maturity, it can be extended in accordance with the Group’s decision) Interest Issue date ~ 2019-12-15 : Fixed rate 4.90% Issue date ~ 2019-12-15 : Fixed rate 4.80% Rate Re-calculated and applied every 5 years, Re-calculated and applied every 5 years, 5-year treasury bond yield + annual 2.55% 5-year treasury bond yield + annual 2.45% + annual 2.00% (Step-up clauses) + annual 2.00% (Step-up clauses) Interest 3 months deferred payment; selective payment postpone is possible payment condition Other Depending on the Group’s choice, the Group can redeem at the date of 5th anniversary after issuance and every interest payment dates thereafter.

The Group has an unconditional option to extend the maturity of hybrid bonds at maturity. Also, payment of interest on the bonds can be postponed at the discretion of the Group. If the payment of interest is postponed, the Group cannot pay any dividend on common stock until the deferred interest is paid in full. The Group classifies hybrid bonds as equity because the Group holds unconditional rights to avoid the contractual obligation to deliver cash or other financial assets to the holder.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

29. Capital Adjustments

(1) Capital adjustments as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) 2018 2017

Treasury stocks W 53,261 53,261 Capital adjustment of equity method securities 2,333 (67) Loss on capital reduction 7,036,683 7,036,683 Other capital adjustment 1,258,987 1,265,526 W 8,351,264 8,355,403

(2) Changes in the treasury stocks for the six-month period ended June 30, 2018 and the year ended December 31, 2017 are as follows:

(In millions of won, except share data) 2018 2017 Number of Number of shares Amount shares Amount

Beginning W 57,885 10,448 10,157,477 966,933 Acquisition - - 57,885 10,448 Changes from spin-off - - (10,157,477) (966,933) Ending(*) W 57,885 10,448 57,885 10,448

(*) The fair value of treasury stocks is W5,904 million and W5,817 million as of June 30, 2018 and December 31, 2017, respectively.

(3) As of June 30, 2018, Hyundai Mipo Dockyard Co., Ltd., a subsidiary, possesses 2,720,558 of treasury stocks, acquisition cost and fair value are W106,221 million and W277,497 million, respectively. Among these treasury stocks, the Group recorded W42,813 million of the Parent Company’s portion as treasury stocks in capital adjustments. For the year ended December 31, 2017, Hyundai Mipo Dockyard Co., Ltd., a subsidiary, disposed of 1,800,000 shares of the Parent Company for the purpose of improving its financial structure and securing liquidity at W254,373 million.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

30. Accumulated Other Comprehensive Income

(1) Accumulated other comprehensive income as of June 30, 2018 and December 31, 2017 is summarized as follows:

(In millions of won) 2018 2017

Changes in fair value of available-for-sale financial assets W - 228,650 Gain or loss on valuation of financial assets measured at FVOCI(*) (219,135) - Effective portion of changes in fair value of cash flow hedges (1,592) (2,212) Exchange differences on translating foreign operations 12,694 (56,718) Changes in equity of equity method investments 2,135 (5,651) Revaluation of property, plant and equipment 1,293,980 1,314,061 W 1,088,082 1,478,130

(*) The amount adjusted for the initial application of K-IFRS 1109 is W(-)446,396 million.

(2) Other comprehensive income (loss) for the three-month and six-month periods ended June 30, 2018 and 2017 is as follows:

(In millions of won) 2018 Other comprehensive Owners of Non-controlling Income (loss) the parent interests Three-month Six-month Three-month Six-month Three-month Six-month

period period period period period period

Gain or loss on valuation of financial assets measured at FVOCI W 681 (1,346) 515 (1,389) 166 43 Effective portion of changes in fair value of cash flow hedges 384 620 384 620 - - Exchange differences on translating foreign operations 93,890 70,995 92,160 69,411 1,730 1,584 Changes in equity of equity method investments 70 7,785 70 7,785 - - Changes in retained earnings of equity method investments (12) (12) (12) (12) - - Actuarial gains and losses 9,076 8,919 9,098 9,056 (22) (137) W 104,089 86,961 102,215 85,471 1,874 1,490

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

30. Accumulated Other Comprehensive Income, Continued

(2) Other comprehensive income (loss) for the three-month and six-month periods ended June 30, 2018 and 2017 is as follows, continued:

(In millions of won) 2017 Other comprehensive Owners of Non-controlling Income (loss) the Company interests Three-month Six-month Three-month Six-month Three-month Six-month

period period period period period period

Changes in fair value of available-for- sale financial assets W 164,971 171,638 53,074 58,790 111,897 112,848 Effective portion of changes in fair value of cash flow hedges (910) 23,653 (910) 23,278 - 375 Exchange differences on translating foreign operations 25,347 (39,506) 22,802 (35,790) 2,545 (3,716) Changes in equity of equity method investments (87) (143) (87) (145) - 2 Changes in retained earnings of equity method investments - 1 - 1 - - Actuarial gains and losses (84) (6,462) (24) (6,412) (60) (50) W 189,237 149,181 74,855 39,722 114,382 109,459

31. Retained Earnings

(1) Retained earnings as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) 2018 2017 Legal reserves: Legal appropriated retained earnings(*1) W 190,000 190,000 Reserve for corporate development(*2) 30,000 30,000 Asset revaluation surplus 1,800,414 1,800,414 2,020,414 2,020,414 Voluntary reserves(*3): Reserve for business rationalization 87,277 87,277 Reserve for facilities 78,270 78,270 Reserve for research and human development 52,360 158,054 Others 13,687,191 9,370,075 13,905,098 9,693,676 Unappropriated retained earnings(*4) 523,703 4,522,812 W 16,449,215 16,236,902

(*1) The Korean Commercial Code requires the Group to appropriate as a legal reserve an amount equal to at least 10% of annual cash dividends for each accounting period until the reserve equals 50% of capital. This reserve is not available for the payment of cash dividends but may be transferred to capital stock or used to offset accumulated deficit, if any, through a resolution of shareholders.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

31. Retained Earnings, Continued (1) Retained earnings as of June 30, 2018 and December 31, 2017 are summarized as follows, continued: (*2) Only available for the reduction of accumulated deficit or transfer to capital stock in accordance with related laws. (*3) Pursuant to the Tax Exemption and Reduction Control Law, the Group is allowed to make reserves for research and human development, facilities and others, which are appropriated in accordance with related laws. (*4) The amount adjusted for the initial application of K-IFRS 1115 and K-IFRS 1109 is W416,934 million.

(2) Changes in retained earnings for the six-month period ended June 30, 2018 and December 31, 2017 are as follows:

(In millions of won) 2018 2017

Beginning balance W 16,236,902 13,433,929 Adjustment on initial application of K-IFRS 1115 and K-IFRS 1109 416,934 - Adjusted beginning balance 16,653,836 13,433,929 Profit (loss) for the period (184,548) 2,693,142 Less: non-controlling interests (38,698) (235,392) Retained earnings of equity method investments (12) 2 Actuarial gains and losses 9,056 14,546 Hybrid bonds interest (10,500) (21,000) Reclassification revaluation surplus 20,081 16,538 Changes from spin-off - 335,137 Ending balance W 16,449,215 16,236,902

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

32. Acquisitions of Subsidiary and Non-controlling Interests

(1) There was no business combination transaction for the six-month period ended June 30, 2018 and the year ended December 31, 2017.

(2) Details of changes in the Group’s interests in subsidiaries which did not result in loss of control for the six- month period ended June 30, 2018 are as follows:

(i) Increase of ownership (In millions of won) Ownership Ownership after Original Decrease in Increase in before transaction Changes in cost and non-controlling controlling Subsidiary transaction (%) (%) equity others interests interest HI Himsen multi strategy Paid-in capital Private Funds Investment reduction Trust 1 71.11 71.34 W - (1,011) 1,011

(ii) Decrease of ownership There was no case in which the ownership interest is reduced without loss of control for the six-month period ended June 30, 2018.

(3) Gains (losses) on loss of control of subsidiaries for the six-month period ended June 30, 2018 are as follows:

(In millions of won) Gain (loss) on disposal upon loss of Gain (loss) on measurement of remaining control(*) investments at fair value upon disposal

HHI China Investment Co., Ltd. W 33,113 59,573 HI-Japan High Dividend Focus Fund (214) - Hyundai Power Transformers USA, Inc. (5,315) - Vladivostok Business Center (56,122) - Hyundai Khorol Agro Ltd. (6,642) - Hyundai Mikhailovka Agro Ltd. (10,475) -

(*) Gain or loss on disposal upon loss of control is presented in other non-operating income or expenses.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

33. Outstanding Contracts

(1) Sales for the three-month and six-month periods ended June 30, 2018 and 2017 are as follows:

(In millions of won) 2018 2017 Three-month Six-month Three-month Six-month period period period period

Construction contracts W 2,838,023 5,569,295 3,825,538 7,655,194 Goods sold 252,288 515,582 391,923 834,492 Services rendered 34,103 82,069 28,312 65,325 W 3,124,414 6,166,946 4,245,773 8,555,011

(2) Changes in outstanding contracts and other sales for the six-month period ended June 30, 2018 are as follows: (In millions of won) Offshore, Industrial Plant Shipbuilding and Engineering Others Total

Beginning balance(*) W 15,381,649 2,946,924 808,052 19,136,625 Increase during the period 7,071,100 113,10 0 530,698 7,714,898 Revenue recognized (4,481,915) (1,127,902) (557,129) (6,166,946) Ending balance W 17,970,834 1,932,122 781,621 20,684,577 (*) The beginning balance includes the impact from changes in the exchange rate.

As of June 30, 2018, the Group provides certain amounts to financial institutions as guarantee deposits or letters of guarantee from various financial institutions to the customers in connection with construction contracts.

(3) Accumulated revenue and cost of construction and others related to construction in progress as of June 30, 2018 are as follows:

(In millions of won) Billed receivables Unbilled Accumulated Accumulated Accumulated on receivables on Provision for revenue of cost of profit (loss) of construction construction Contract construction construction construction construction contracts(*) contracts(*) liabilities losses

Shipbuilding W 6,729,408 7, 7 6 7, 6 1 6 (1,038,208) 202,194 2,839,259 1,876,433 997,333 Offshore, Industrial Plant and Engineering 15,825,779 16,974,923 (1,149,144) 647,503 114,303 219,398 250,321 Others 77,474 67,482 9,992 - 22,982 - 766 W 22,632,661 24,810,021 (2,177,360) 849,697 2,976,544 2,095,831 1,248,420

(*) As of June 30, 2018, allowance for receivables on billed receivables and contract assets is W172 million and W2,052 million, respectively.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

33. Outstanding Contracts, Continued

(3) Accumulated revenue and cost of construction and others connected with construction in progress as of June 30, 2018 are as follows, continued:

Among the receivables on construction contracts, the amount of retentions according to the contract terms is W 416,666 million.

Heavy-Tail payment plan is a major collection term in the Shipbuilding segment, and billing in Offshore, Industrial Plant and Engineering is mainly based on Progress and Milestone payment plan. Therefore, billed receivables on construction contracts and due from customers for contract work change as constructions progress.

(4) As of June 30, 2018, information of main construction contracts whose contract revenue is more than 5% of the previous fiscal year’s sales is as follows:

(In millions of won, except percentage of stage of completion) Contract Trade assets receivables Stage of Allowance Date of Construction completion Total Accumulated Total for doubtful Name contract deadline(*1) (%) amount impairment amount accounts SHUQAIQ 2013.08.04 2018.08.04 95.6 - - 401,344 - A/H SPAR TOPSIDE 2013.01.18 2016.04.15 97.7 - - - - Q204 FPSO 2011.02.24 2015.12.25 98.9 - - - - ZOR 2015.10.13 2019.07.27 43.7 9,590 - 75,981 - CFP 2014.04.13 2018.01.12 91.0 2,637 - 115,931 - MHN TLP 2013.03.18 2017.03.01 98.3 603 - - - DSO 2011.01.21 2017.05.03 99.9 1,049 - 351 - BERGADING 2014.05.27 2016.11.30 97.0 - - 85 - NASR 2 2014.07.08 2019.05.08 (*2) MHN FPU 2013.03.18 (*2)

(*1) For the project that the construction deadline has elapsed, some remaining work are in progress after the objective is transferred, or a discussion with the client to extend the construction period is still under negotiation. (*2) For the reason that there are contractual confidentiality obligations and the clients do not agree to disclose these information, the Group omits the related disclosures after reporting it to the audit committee. However, if a date of contract and construction deadline are disclosed in securities registration statement, business report, investment prospectus, or important management matters, the Group has disclosed related information.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

33. Outstanding Contracts, Continued

(5) The effect of changes in estimated total contract costs (i) Effect of changes in total contract costs For the six-month ended June 30, 2018, due to factors causing changes in contract costs, the estimated total contract costs for contracts in progress have changed. Details of changes in profit or loss for the current period and the future period, the impact on contract assets and contract liabilities are as follows:

(In millions of won) Changes in Changes in total Effect on profit or loss of contract total estimated Change of Change of

contract contract Current Future contract contract revenue(*) cost period period Total assets liabilities

Shipbuilding W 423,138 99,511 272,931 50,696 323,627 45,580 12,003 Offshore, Industrial Plant and Engineering 150,199 (24,282) 154,576 19,905 174,481 4,532 (16,703) Other - 3,380 (3,552) 172 (3,380) 3,552 - W 573,337 78,609 423,955 70,773 494,728 53,664 (4,700)

(*) Changes in entire contract revenue (including foreign currency fluctuation) are reflected because it is unable to distinguish total contract revenue changed directly by changes in total contract costs.

The effect on profit or loss for the current period and future period is calculated based on total contract costs and total contract revenue estimated with situations incurred in current period considered, and these estimates could be changed by variation of situations in the future.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

33. Outstanding Contracts, Continued

(5) The effect of changes in estimated total contract costs, continued (ii) Sensitivity analysis of changes in estimated total contract costs

The amount of contract assets and contract liabilities is affected by the rate of progress which is determined by accumulated cost incurred divided by estimated total contract costs. Estimated total contract costs are calculated based on estimated cost of materials, labour costs and construction period and has a variance risk related to exchange rate fluctuation, changes in steel prices and changes in production hours.

The Group has entered into foreign currency forward contracts to hedge the risk related to exchange rate fluctuation and hedged the risk related to changes in steel price in short period of time by entering steel purchase agreement by periods.

The risk and uncertainty related to production hours have been managed by a department which is responsible for managing production hours. The impacts on profit or loss of current period and future periods, contract assets and contract liabilities in case production hour changes 10% are as follows:

(In millions of won) Effect on profit or loss in Effect on profit or loss in Change of Change of current period future period contract assets contract liabilities 10% 10% 10% 10% 10% 10% 10% 10% increase decrease increase decrease increase decrease increase decrease Shipbuilding W (297,788) 270,840 (75,377) 102,364 (29,011) 29,986 6,808 (7,046) Offshore, Industrial Plant and Engineering (2,933) 2,945 (2,283) 2,271 (1,289) 1,299 905 (918) Other (53) 48 - - (53) 48 - - W (300,774) 273,833 (77,660) 104,635 (30,353) 31,333 7, 7 1 3 (7,964)

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

34. Operating Segments

The Group has 7 reportable segments, as described below, which are its strategic business units. The policies of strategic business units are the same as those applied by the Group in its consolidated financial statements as of and for the year ended December 31, 2017.

(i) Shipbuilding: Manufacturing and sale of VLCCs, containerships, P/C ships, LNG carriers, and warships (ii) Offshore, Industrial Plant and Engineering: Manufacturing and installation of offshore facilities, floating units, co-generating power plants, and processing equipment (iii) Engine and Machinery: Manufacturing and sale of engines for ships, diesel power plants, industrial and marine pumps and hydraulic machinery (iv) Electro Electric Systems: Manufacturing and sale of transformers, low and medium voltage circuit breakers, switchgears, power electronics and control systems, and wind turbine systems (v) Construction Equipment: Manufacturing and sale of construction equipment and wheel loaders (vi) Green Energy: Services related to solar power systems and new and renewable energy systems (vii) Others: football club, and others

Information about these reportable segments is as follows:

(1) The financial performance of each reportable segments for the six-month periods ended June 30, 2018 and 2017 is as follows:

(In millions of won) 2018 Operating profit (loss) Profit (loss) Inter- from from segment continuing continuing Sales sales operations operations Depreciation

Shipbuilding W 4,781,142 (299,227) (260,710) (271,871) 111,871 Offshore and Industrial Plant Engineering 1,131,236 (3,334) 37,666 1,035 23,497 Engine and Machinery 461,389 (227,739) (1,715) (8,623) 24,753 Electro Electric Systems - - - - - Construction Equipment 35,309 - 1,059 (524) 1,221 Green Energy 154,227 (147) 8,754 7, 2 0 0 2,691 Others 271,020 (136,930) (86,739) 141,595 23,901 Consolidation adjustments (667,377) 667,377 2,188 (234,605) (1,233) W 6,166,946 - (299,497) (365,793) 186,701

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

34. Operating Segments, Contined

(1) The financial performance of each reportable segments for the six-month periods ended June 30, 2018 and 2017 is as follows, continued:

(In millions of won) 2017 Operating profit (loss) Profit (loss) Inter- from from company continuing continuing Sales sales operations operations Depreciation

Shipbuilding W 5,916,617 (312,344) 272,739 248,231 115,281 Offshore and Industrial Plant Engineering 2,234,746 (105) 85,340 109,885 26,108 Engine and Machinery 629,682 (277,690) 68,184 61,851 26,007 Electro Electric Systems 50,327 (3,534) (5,386) (42,516) 3,663 Construction Equipment 31,668 (6,878) (17,877) (18,206) 1,462 Green Energy 114,138 (1,191) (9,543) (13,556) 11,206 Others 318,410 (138,835) (106,797) (126,589) 27,888 Consolidation adjustments (740,577) 740,577 3,241 77,778 (6,492) W 8,555,011 - 289,901 296,878 205,123

Consolidation adjustments are made by eliminating inter-segment transactions, unrealized profits and losses, and valuations of investments in associates and joint ventures using the equity method.

Gains and losses classified as discontinued operations for the six-month periods ended June 30, 2018 and 2017 are as follows: (In millions of won) Operating profit Profit from Sales from discontinued discontinued Depreciation 2018 W 404,500 41,739 181,244 2,831 2017 6,116,223 451,405 224,998 107,492

(2) Assets and liabilities of each segments as of June 30, 2018 and December 31, 2017 are as follows:

(In millions of won) 2018 2017 Total assets Total liabilities Total assets Total liabilities

Shipbuilding W 14,256,609 7,004,830 14,760,064 6,366,366 Offshore and Industrial Plant Engineering 1,991,110 2,022,718 2,158,426 2,310,438 Engine and Machinery 1,042,157 584,289 1,031,121 605,291 Electro Electric Systems 75 - 165,905 132,857 Construction Equipment 143,101 41,401 155,272 41,456 Green Energy 296,337 68,097 255,448 35,534 Others 11,889,241 2,250,958 11,482,525 3,833,825 Consolidation adjustments (5,380,726) (356,931) (5,446,938) (166,848) Held for sale 6,567,329 5,778,320 5,847,025 4,877,891 W 30,805,233 17,393,682 30,408,848 18,036,810

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

34. Operating Segments, Contined

(2) Assets and liabilities of each segments as of June 30, 2018 and December 31, 2017 are as follows, continued:

Consolidation adjustments are made by eliminating inter-segment transactions, unrealized profits and losses, and valuations of investments in associates and joint ventures using the equity method.

(3) Geographical information by subsidiary location

(i) Sales for the six-month periods ended June 30, 2018 and 2017 are as follows:

(In millions of won) 2018 2017 Intercompany Intercompany Sales sales Sales sales

Korea W 6,561,657 (452,467) 15,037,765 (2,169,666) North America - - 136,155 (870) Asia 236,796 (214,910) 1,955,986 (437,853) Europe 562 - 124,458 (4,355) Others 35,308 - 32,533 (2,919) Consolidation adjustments (667,377) 667,377 (2,615,663) 2,615,663 Discontinued operation - - (6,116,223) - W 6,166,946 - 8,555,011 -

Consolidation adjustments are made by eliminating inter-segment transactions and unrealized profits and losses.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

34. Operating Segments, Continued

(3) Geographical information by subsidiary location, continued

(ii) Non-current assets as of June 30, 2018 and December 31, 2017 are as follows:

(In millions of won) 2018 2017

Korea W 10,714,958 10,763,290 North America - 76,124 Asia 190,396 270,007 Europe 1 23,485 Others 56,389 63,913 10,961,744 11,196,819 Consolidation adjustments (*1) (70,843) 287,291 Held for sale - (98,546) Total (*2) W 10,890,901 11,385,564

(*1) Consolidation adjustments are made by eliminating inter-segment transactions and unrealized profits and losses. (*2) It represents the sum of investment property, property, plant and equipment, and intangible assets.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

35. Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three-month and six-month periods ended June 30, 2018 and 2017 are as follows: (In millions of won) 2018 2017 Three-month period Six-month period Three-month period Six-month period

Salaries W 44,499 97,124 58,037 120,100

Retirement benefits 69,535 74,424 6,151 12,664

Employee welfare 14,507 28,320 15,954 33,735

Depreciation 8,264 17,469 9,602 18,777 Bad debt expenses (Reversal of allowance for bad debt) (21,396) (39,990) 82,139 60,950

Ordinary development costs 13,848 26,091 18,897 34,715

Advertising 1,985 4,778 2,625 3,575

Printing 306 925 373 1,013

Warranty expenses 22,084 26,005 90,332 198,562

Insurance 651 1,418 835 1,614

Supplies 581 1,466 1,017 2,102

Utilities 5,761 6,630 308 1,074

Repairs 1,294 2,847 1,845 2,918

Travel 2,125 4,222 2,395 4,496

Research 1,537 3,169 1,667 2,795

Training 1,201 1,414 813 1,038

Service contract expenses 11,016 26,511 13,213 25,724

Transportation 841 8,285 4,452 8,969

Rent 3,089 6,047 1,671 3,733

Data processing 7,978 10,706 7,156 10,350 Entertainment 486 1,017 628 1,169

Taxes and dues 822 2,259 1,282 3,095

Service charges 15,135 31,898 12,767 26,243

Automobile maintenance 1,137 2,435 1,141 2,474

Sales commissions 1,057 1,466 1,417 2,111 Others 9,013 18,448 9,628 17,325

W 217,356 365,384 346,345 601,321

36. Nature of Expenses

The classification of expenses by nature for the three-month and six-month periods ended June 30, 2018 and 2017 is as follows: (In millions of won) 2018 2017 Three-month period Six-month period Three-month period Six-month period

Changes in inventories W (52,752) (4,633) 101,033 277,559 Purchase of inventories 1,731,536 3,311,151 1,667,573 3,241,275 Depreciation 91,523 186,701 100,976 205,123 Amortization 4,830 10,653 6,972 14,456 Labor cost 474,671 889,187 515,638 1,076,064 Other expenses 1,050,308 2,073,384 1,705,194 3,450,633 W 3,300,116 6,466,443 4,097,386 8,265,110 Total expenses consist of cost of sales and selling, general and administrative expenses.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

37. Finance Income and Finance Costs

Finance income and finance costs for the three-month and six-month periods ended June 30, 2018 and 2017 are as follows:

(In millions of won) 2018 2017 Three- Three- month Six-month month Six-month period period period period Finance income: Interest income W 18,423 36,576 14,057 26,215 Gain on valuation of financial instruments at fair value through profit or loss - - - 27,717 Gain on disposal of financial instruments at fair value through profit or loss - - 11,039 17,003 Gain on valuation of financial instruments measured at FVTPL 3,208 2,300 - - Gain on disposal of financial instruments measured at FVTPL 5,500 7,213 - - Gain on disposal of available-for-sale financial assets - - 312,837 312,837 Dividend income 20 868 - 968 Gain on foreign currency translation 71,859 93,514 61,704 165,114 Gain on foreign currency transactions 100,857 182,771 93,187 226,908 Gain on valuation of derivatives - 6,150 - 199,873 Gain on derivatives transactions 3,377 11,576 124,643 282,173 Others 17 30 308 333 W 203,261 340,998 617,775 1,259,141 Finance costs: Interest expense W 30,742 71,910 23,002 50,082 Loss on valuation of financial instruments at fair value through profit or loss - - 19,184 40 Loss on disposal of financial instruments at fair value through profit or loss - - 2,075 2,376 Loss on disposal of financial instruments measured at FVTPL 1,079 4,019 - - Loss on disposal of available-for-sale financial assets - - 1 1 Impairment loss on available-for-sale financial assets - - 1,357 1,357 Loss on foreign currency translation 75,798 96,771 - 121,342 Loss on foreign currency transactions 76,206 166,318 172,359 439,829 Loss on valuation of derivatives 230,194 212,256 209,078 8,652 Loss on derivatives transactions 15,167 20,668 32,998 35,298 Others 15,033 15,034 - 369 W 444,219 586,976 460,054 659,346

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

38. Other Non-operating Income and Other Non-operating Expenses

Other non-operating income and other non-operating expenses for the three-month and six-month periods ended June 30, 2018 and 2017 are as follows:

(In millions of won) 2018 2017 Three-month Six-month Three-month Six-month period period period period Other non-operating income: Gain on disposal of property, plant and equipment W 4,320 5,537 2,278 5,671 Gain on disposal of intangible assets - 17 420 616 Gain on disposal of other investment assets 2,796 2,796 - 1,779 Gain on valuation of firm commitments 238,703 220,471 93,930 22,391 Others 75,359 81,735 11,387 20,458 W 321,178 310,556 108,015 50,915 Other non-operating expenses: Service charges W 3,815 8,733 992 3,811 Loss on disposal of investments in associates - 71 737 737 Loss on disposal of property, plant and equipment 28,607 31,958 6,706 7,428 Loss on disposal of intangible assets - - 306 427 Loss on disposal of other investment assets - 16,877 49 436 Impairment loss on property, plant and equipment - - 72,834 72,834 Impairment loss on intangible assets - 19 353 354 Loss on valuation of firm commitments - 5,762 - 317,971 Other bad debt expenses 11,593 12,253 3,516 3,516 Donation 2,066 4,429 3,096 4,807 Others 171,430 211,450 35,775 82,852 W 217,511 291,552 124,364 495,173

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

39. Income Tax Expense (Benefit)

Income tax expense has been calculated as current tax expense adjusted to current adjustments for prior periods, deferred tax income/expenses by origination and reversal of deferred tax assets/liabilities and temporary differences, and income tax recognized in other comprehensive income.

Income tax expense (benefit) for the six-month periods June 30, 2018 and 2017 is W(-)134,088 million and W157,007 million, respectively. The effective tax rate for the six-month periods ended June 30, 2018 was not calculated because it is income tax revenue.

The effective tax rate for the six-month period ended June 30, 2017 is 34.59%.

40. Earnings (loss) per Share

(1) Basic earnings (loss) per share for the three-month and six-month periods ended June 30, 2018 and 2017 are as follows:

(in millions of won, except share data) 2018 Three-month period Six-month period Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total

Profit (loss) attributable to owners of the Company W (249,194) 13,534 (235,660) (385,737) 162,492 (223,245) Interest for hybrid bonds (5,250) - (5,250) (10,500) - (10,500) Weighted-average number of ordinary shares outstanding (in thousands of shares) 66,387 66,387 66,387 61,207 61,207 61,207 Earnings (loss) per share (in won) W (3,833) 204 (3,629) (6,474) 2,655 (3,819)

(in millions of won, except share data) 2017 Three-month period Six-month period Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total

Profit (loss) attributable to owners of the Company W 194,257 2,337,479 2,531,736 287,297 2,620,330 2,907,627 Interest for hybrid bonds (5,250) - (5,250) (10,500) - (10,500) Weighted-average number of ordinary shares outstanding (in thousands of shares) 52,112 52,112 52,112 55,924 55,924 55,924 Earnings per share (in won) W 3,627 44,855 48,482 4,949 46,855 51,804

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

40. Earnings (loss) per Share, Continued

(2) The weighted-average number of ordinary shares for the three-month and six-month periods ended June 30, 2018 and 2017 is as follows:

(In shares) 2018 Three-month period Six-month period Number of Weighted-average Number of Weighted-average shares Weighting number of shares shares Weighting number of shares outstanding factor outstanding outstanding factor outstanding

Beginning balance 53,886,983 91/91 53,886,983 53,886,983 181/181 53,886,983 Paid-in capital increase 12,500,000 91/91 12,500,000 12,500,000 106/181 7,320,442 Weighted-average number of ordinary shares outstanding 66,386,983 66,386,983 66,386,983 61,207,425

(In shares) 2017 Three-month period Six-month period Number of Weighted-average Number of Weighted-average shares Weighting number of shares shares Weighting number of shares outstanding factor outstanding outstanding factor outstanding

Beginning balance 59,779,523 91/91 59,779,523 59,779,523 181/181 59,779,523 Changes from spin-off (7,634,655) 91/91 (7,634,655) (7,634,655) 91/181 (3,838,418) Acquisition of treasury stocks (57,885) 52/91 (33,077) (57,885) 52/181 (16,630) Weighted-average number of ordinary shares outstanding 52,086,983 52,111,791 52,086,983 55,924,475

(3) Since there are no dilutive potential common shares for the three-month and six-month periods ended June 30, 2018 and 2017, diluted earnings per share have not been calculated.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

41. Cash Generated from Operations

(1) Cash generated from operations for the six-month periods ended June 30, 2018 and 2017 are summarized as follows: (In millions of won) 2018 2017

Profit (loss) for the period W (184,548) 3,067,217

Adjustments for: Retirement benefits 29,149 81,233 Depreciation 186,701 312,615 Amortization 10,653 34,039 Bad debt expenses (39,990) 65,966 Finance income (141,909) (835,496) Finance costs 396,190 344,536 Other non-operating income (390,240) (78,654) Other non-operating expenses 216,292 710,700 Share of loss (profit) of equity accounted investees (28,311) (39,442) Gains on disposals of discontinued operations - (2,545,341) Income tax expense (benefit) (176,923) 122,070 Finance income (sales) (104,329) (172,611) Finance costs (cost of sales) 78,533 158,485

Changes in assets and liabilities: Short-term financial assets (678,947) 273,778 Trade receivables 55,020 (865,623) Other receivables (578,838) (1,126,236) Due from customers for contract work - 1,313,478 Contract assets 558,530 - Inventories (4,632) 76,365 Derivative assets 107,456 (338,268) Firm commitments (12,816) 3,899 Other current assets 85,902 (174,256) Long-term financial assets (3,351) (1,138) Long-term trade receivables 11,591 24,091 Other non-current assets 3,876 9,652 Short-term financial liabilities 63,611 (29,894) Trade payables 36,766 1,013,851 Other payables 336,827 216,125 Advances from customers 254,610 188,096 Due to customers for contract work - (607,382) Contract liabilities 219,080 - Other current liabilities 12,809 6,357 Long-term other payables (619) (5,605) Retirement benefits paid (64,853) (85,593) Succession of retirement benefits 211 659 Plan assets 26,868 63,876 Current provisions (128,627) - Non-current liabilities (34,919) 109,500 Other non-current liabilities (4,059) (17,027)

W 112,764 1,274,022

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

41. Cash Generated from Operations, Continued

(2) Significant transactions that do not involve cash inflows and outflows for the six-month periods ended June 30, 2018 and 2017 are as follow:

(In millions of won) 2018 2017

Reclassification of construction-in-progress W 39,694 54,789 Reclassification of investment property and property, plant and equipment to non-current assets held for sales 255,901 19,327 Reclassification of available-for-sale financial assets to investments in associates - 15,431 Reclassification to current portion of debentures and borrowings 301,863 1,677,546 Increase (decrease) in changes in fair value of available-for-sale financial assets - 171,638 Change in advance related to the non-current assets held for sale 20,000 - Increase (decrease) in changes of financial assets measured at FVOCI (1,346) -

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

42. Categories of Financial Instruments and Income and Costs

(1) Categories of financial instruments as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) 2018 Financial instruments Fair value-hedging Financial instruments Equity investments measured at amortized instruments measured at FVTPL measured at FVOCI cost

Cash and cash equivalents W - - - 3,139,448 Short-term financial assets - - - 957,823 Trade and other receivables - - - 1,856,549 Contract assets - - - 2,976,544 Derivative assets (current) 15,645 - - - Long-term financial assets - 1,263 131,554 212 Long-term trade and other receivables - - - 119,599 Derivative assets (non-current) 14,900 - - - Short-term financial liabilities - 564 - 2,441,536 Trade and other payables - - - 2,738,559 Derivative liabilities (current) 128,650 - - - Long-term financial liabilities - 5,956 - 1,178,411 Long-term trade and other liabilities - - - 9,356 Derivative liabilities (non-current) 47,743 - - - W 206,938 7,783 131,554 15,418,037

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

42. Categories of Financial Instruments and Income and Costs, Continued

(1) Categories of financial instruments as of June 30, 2018 and December 31, 2017 are summarized as follows, continued:

(In millions of won) 2017 Cash and Held-for- Held-for- Financial liabilities cash trading Available-for-sale Loans and Derivative trading measured at Derivative equivalents investments financial assets receivables assets liabilities amortized cost liabilities

Cash and cash equivalents W 3,239,727 ------Short-term financial assets - 722 - 400,597 - - - - Trade and other receivables - - - 1,942,374 - - - - Due from customers for contract work - - - 3,357,947 - - - - Derivative assets (current) - - - - 140,892 - - - Long-term financial assets - 1,112 133,620 234 - - - - Long-term trade and other receivables - - - 102,288 - - - - Derivative assets (non-current) - - - - 28,335 - - - Short-term financial liabilities - - - - - 5,774 4,017,013 - Trade and other payables ------2,995,444 - Derivative liabilities (current) ------512 Long-term financial liabilities - - - - - 7, 8 1 7 1,313,847 - Long-term trade and other liabilities ------9,993 - Derivative liabilities (non-current) ------410 W 3,239,727 1,834 133,620 5,803,440 169,227 13,591 8,336,297 922

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

42. Categories of Financial Instruments and Income and Costs by Categories, Continued

(2) Financial instruments’ income and costs by categories for the six-month periods ended June 30, 2018 and 2017 are as follows:

(In millions of won) 2018 Interest Net income (loss) Other comprehensive income/expense Impairment loss (*2) income (loss) (*1,2) Fee income/expense Dividend income (*2) Three- Six- Three- Three- Six- Three- Six- Three- Six- Three- month month month Six-month month month month month month month month Six-month period period period period period period period period period period period period Fair value-hedging instruments W (241,985) (215,199) 384 620 ------Financial instruments measured at FVTPL 7,629 5,495 ------Equity investments measured at FVOCI 2,572 3,797 681 (1,346) - - - - 20 868 - - Financial instruments measured at amortized cost 3,047 (9,679) - - (12,318) (35,335) - - - - 9,803 27,737

(*1) Interest income and expense arising from effective interest rate amortization are included. (*2) Financial income and costs related to discontinued operations are included.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

42. Categories of Financial Instruments and Income and Costs, Continued

(2) Financial instruments’ income and costs by categories for the six-month periods ended June 30, 2018 and 2017 are as follows, continued:

(In millions of won) 2017 Other comprehensive Interest Net income (loss) income (loss) income/expense(*) Fee income/expense Impairment loss Three-month Six-month Three-month Six-month Three-month Six-month Three-month Six-month Three-month Six-month period period period period period period period period period period Cash and cash equivalents W 40,706 8,461 - - 7,982 22,337 - - - - Held-for-trading investments 15,365 61,045 - - 20,932 42,688 - - - - Financial assets at fair value through profit or loss 24,403 45,148 - - (244) 51 - - - - Available-for-sale financial assets 314,688 316,602 164,971 171,638 1,269 2,394 - - (1,357) (1,357) Loans and receivables 115,210 (400,601) - - 11,428 20,628 555 1,128 (83,202) (60,450) Held-for-trading liabilities (7,511) 46,729 - - 303 (1) - - - - Financial liabilities at fair value through profit or loss (53,378) (108,032) - - (996) (1,998) - - - - Financial liabilities measured at amortized cost (279,798) 82,842 - - (12,840) (124,584) - - - - Derivatives (117,855) 438,329 (10,749) 13,814 ------

(*) Interest income and expense arising from effective interest rate amortization are included.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

43. Risk of Financial Instruments

(1) Currency risk The Group's exposure to foreign currency risk based on notional amounts as of June 30, 2018 and December 31, 2017 is as follows:

(In millions of won) 2018 USD EUR CNY JPY Others Total

Cash and cash equivalents W 1,004,926 3,060 6 229 70,278 1,078,499 Trade and other receivables 1,536,609 3,577 22 266 58,264 1,598,738 Contract assets 2,337,642 574,324 - - 18,652 2,930,618 Trade and other payables (924,087) (64,083) (387) (2,027) (139,431) (1,130,015) Borrowings and debentures (1,030,584) (116,425) - (2,032) (1,406) (1,150,447) Gross statement of financial position exposure 2,924,506 400,453 (359) (3,564) 6,357 3,327,393 Derivative contracts (144,268) (1,495) - - (85) (145,848) Net exposure W 2,780,238 398,958 (359) (3,564) 6,272 3,181,545

Currency risk is based on financial instruments expressed in currencies other than the functional currency of individual companies in the group.

(In millions of won) 2017 USD EUR CNY JPY Others Total

Cash and cash equivalents W 992,251 4,026 6 3,643 118,973 1,118,899 Loans and receivables 4,816,872 366,172 9 359 148,050 5,331,462 Trade and other payables (430,531) (52,257) - (1,184) (109,277) (593,249) Borrowings and debentures (1,564,181) (127,283) - (3,707) (2,504) (1,697,675) Gross statement of financial position exposure 3,814,411 190,658 15 (889) 155,242 4,159,437 Derivative contracts 165,012 4,454 - - (439) 169,027 Net exposure W 3,979,423 195,112 15 (889) 154,803 4,328,464

Currency risk is based on financial instruments expressed in currencies other than the functional currency of individual companies in the group.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

43. Risk of Financial Instruments, Continued

(2) Fair values (i) Fair values versus carrying amounts The fair values of financial assets and liabilities, together with the carrying amounts shown in the statements of financial position, are as follows:

(In millions of won) 2018 Financial Financial Equity instruments Fair value- instruments investments measured at hedging measured at measured amortized instruments FVTPL at FVOCI cost

Assets carried at fair value: Financial assets measured at FVTPL W - 1,263 - - Financial assets measured at FVOCI - - 131,554 - Derivative assets 30,545 - - - W 30,545 1,263 131,554 - Assets not carried at fair value: Cash and cash equivalents W - - - 3,139,448 Financial instruments - - - 958,035 Trade and other receivables - - - 1,976,148 Contract assets - - - 2,976,544 - - - 9,050,175 Total financial assets W 30,545 1,263 131,554 9,050,175 Liabilities carried at fair value: Financial liabilities measured at FVTPL W - 6,520 - - Derivative liabilities 176,393 - - - W 176,393 6,520 - - Liabilities not carried at fair value: Borrowings W - - - 3,112,339 Debentures - - - 64,902 Exchangeable bond issues - - - 23,851 Finance lease liabilities - - - 18,855 Trade and other payables - - - 2,747,915 Convertible preference share - - - 400,000 - - - 6,367,862 Total financial liabilities W 176,393 6,520 - 6,367,862

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

43. Risk of Financial Instruments, Continued

(2) Fair values, continued (i) Fair values versus carrying amounts, continued

(In millions of won) 2017 Carrying Fair amounts values Assets carried at fair value: Held-for-trading investments W 1,834 1,834 Financial assets at fair value through profit or loss - - Available-for-sale financial assets(*) 133,620 133,620 Derivative assets 169,228 169,228 W 304,682 304,682 Cash and cash equivalents W 3,239,727 3,239,727 Assets carried at amortized cost: Loans and receivables 5,803,440 5,803,440 Total financial assets W 9,347,849 9,347,849 Liabilities carried at fair value: Held-for-trading liabilities W 13,591 13,591 Financial liabilities at fair value through profit or loss - - Derivative liabilities 922 922 W 14,513 14,513 Liabilities carried at amortized cost: Borrowings W 4,286,127 4,286,127 Debentures 394,693 394,693 Exchangeable bond 217,565 217,565 Convertible preference share 400,000 400,000 Trade and other payables 3,005,437 3,005,437 Deposit liabilities - - Finance lease liabilities 32,475 32,475 Others - - 8,336,297 8,336,297 Total financial liabilities W 8,350,810 8,350,810

(*) The amounts of available-for-sale financial assets that were recorded at their acquisition cost because the fair values cannot be estimated reliably as of December 31, 2017 are W12,248 million.

(ii) Fair value hierarchy The different levels have been defined as follows:

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

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

43. Risk of Financial Instruments, Continued

(2) Fair values, continued (ii) Fair value hierarchy, continued The financial instruments carried at fair value by fair value hierarchy as of June 30, 2018 and December 31, 2017 are as follows:

(In millions of won) Level 1 Level 2 Level 3 Total 2018 Financial assets measured at FVTPL W - 1,263 - 1,263 Financial assets measured at FVOCI 42,330 524 76,562 119,416 Derivative assets - 30,545 - 30,545 Financial liabilities measured at FVTPL - 6,520 - 6,520 Derivative liabilities - 176,393 - 176,393 2017 Held for trading investments - 1,834 - 1,834 Available-for-sale financial assets 44,283 527 76,562 121,372 Derivative assets - 169,228 - 169,228 Held for trading liabilities - 13,591 - 13,591 Derivative liabilities - 922 - 922

The fair value of financial instruments traded in active markets is based on quoted market prices at the end of reporting period. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1. Instruments included in level 1 are comprised primarily of listed equity investments.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fairly value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

Specific valuation techniques used to value financial instruments include: - Quoted market prices or dealer quotes for similar instruments - The fair value of forward foreign exchange contracts is determined using forward exchange rates at the end of reporting period with the resulting value discounted back to present value. - Other techniques, such as a discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.

The Group excluded unlisted equity securities, investments in capital, and others, such as investments in companies newly established or having no comparative company, whose fair value cannot be measured reliably from the fair value measurement.

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

43. Risk of Financial Instruments, Continued

(3) Valuation techniques and input variables of level 2 fair values The valuation techniques and input variables used in measuring level 2 fair values as of June 30, 2018 and December 31, 2017 are as follows:

(In millions of won) 2018 2017 Valuation techniques Input variables Financial assets measured at FVTPL: Derivatives Cash flow discount model Currency forward price, - 722 and others discount rate and others Put option for common Volatility, discount rate and stock Binomial model 1,263 1,112 others 1,263 1,834 Financial assets measured at FVOCI: Beneficiary certificates Market approach, Net asset CER future price, discount value, cash flow discount rate and others 524 527 model and others Derivative assets: Derivatives Cash flow discount model Currency forward price, 30,545 169,228 and others discount rate and others Financial liabilities

measured at FVTPL: Sale securities Cash flow discount model Discount rate and others - - and others Conversion rights to Volatility, discount rate and Binomial model exchangeable bond 564 5,774 others Claims for common Volatility, discount rate and Binomial model stock purchase 5,956 7,817 others 6,520 13,591 Derivative liabilities: Derivatives Cash flow discount model Currency forward price, 176,393 922 and others discount rate and others

100

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

43. Risk of Financial Instruments, Continued

(4) Level 3 fair values (i) Changes in assets and liabilities which are classified as Level 3 fair values among assets and liabilities measured at fair value for the six-month period ended June 30, 2018 and for the year ended December 31, 2017 are as follows:

(In millions of won) 2018 Substitution Beginning Transfer to Transfer of held for Ending Balance(*) Acquisitions Disposals Level 3 from Level 3 Valuation sale Balance

Financial assets measured at FVOCI W 76,562 ------76,562

(*) As of December 31, 2017, it was classified as available-for-sale financial assets.

(In millions of won) 2017 Substitution Beginning Transfer to Transfer of held for Ending Balance Acquisitions Disposals Level 3 from Level 3 Valuation sale Balance

Held-for-trading investments W 9,526 2,388 (8,392) - - 4,401 (7,923) - Financial assets at fair value through profit or loss 292,125 37,927 (79,780) - - (11,239) (239,033) - Available-for-sale financial assets 100,359 18,008 (9,123) 29,037 (334) 3,267 (64,652) 76,562 Held-for-trading liabilities 119,624 4,389 (105,165) - - (17,364) (1,484) - Financial liabilities at fair value through profit or loss 884,473 388,960 (859,414) - - 11,535 (425,554) -

101

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

43. Risk of Financial Instruments, Continued

(4) Level 3 fair values, continued (ii) The valuation techniques and input variables used in measuring level 3 fair values as of June 30, 2018 and December 31, 2017 are as follows:

(In millions of won) 2018 Significant unobservable input Ranges of significant Amount Valuation techniques Input variables variables unobservable input variables Financial assets measured at FVOCI Equity securities Cash flow discount model, Discount rate, Market Discount rate, Market multiples 6.05%~8.62%

W 76,562 Guideline public company method multiple and others and others 1.00~30.56

(In millions of won) 2017 Significant unobservable input Ranges of significant Amount Valuation techniques Input variables variables unobservable input variables Available-for-sale financial assets: Equity securities Cash flow discount model, Discount rate, Market Discount rate, market multiples 6.05%~8.62%

W 76,562 Guideline public company method multiple and others and others 1.00~30.56

102

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

43. Risk of Financial Instruments, Continued

(4) Level 3 fair values, continued (iii) Effects by changes in unobservable input variables on fair value measurement of financial assets and liabilities as of June 30, 2018 and December 31, 2017 are as follows:

(In millions of won) 2018 Effects of changes in fair value Other comprehensive income Profit (loss) for the period (loss) Effects by changes in Unobservable unobservable input variables Measuring methods of the effect of Favorable Unfavorable Favorable Unfavorable input variables on fair value measurement changes changes changes changes changes Financial assets measured at FVOCI: Equity securities Discount rate Fair value decrease by discount Measuring fair value changes by 1% rate increase discount rate increase or decrease W - - 5,085 (4,328) Stock price multiple Fair value increase by stock price Measuring fair value changes by 10% multiple increase stock price multiple increase or decrease - - 22,111 (22,111)

103

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

43. Risk of Financial Instruments, Continued

(In millions of won) 2017 Effects of changes in fair value Other comprehensive income Profit (loss) for the year (loss) Effects by changes in Unobservable input unobservable input variables Measuring methods of the effect of Favorable Unfavorable Favorable Unfavorable variables on fair value measurement changes changes changes changes changes Available-for-sale financial assets: Equity securities Discount rate Fair value decrease by discount Measuring fair value changes by 1% rate increase discount rate increase or decrease W - - 5,085 (4,328) Stock price multiple Fair value increase by stock price Measuring fair value changes by 10% multiple increase stock price multiple increase or decrease - - 22,111 (22,111)

The impact from changes in unobservable input variables on financial assets and liabilities which cannot be reliably estimated is excluded from the effects of changes in fair value.

104

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

43. Risk of Financial Instruments, Continued

(5) Transfers of financial assets (i) Transferred financial assets Transferred financial assets are fully eliminated as of June 30, 2018 and December 31, 2017.

(ii) Lent securities The Group continues to recognize whole lent securities in which the Group retains substantially all the risks and rewards of ownership of transferred lending securities because the Group will require to return the securities after the rental period expires. As of June 30, 2018 and December 31, 2017, book value of the lending securities is as follows:

(In millions of won)

Securities 2018 2017 Borrower Financial assets Common stocks of Hyundai Merrill Lynch International and The measured at Merchant Marine Co., Ltd. Hongkong and Shanghai Banking FVOCI: W 7,530 7,515 Corporation Limited

In addition to above, borrowed and lent securities of HI Investment & Securities Co., Ltd, one of subsidiaries, as of June 30, 2018 and December 31, 2017 are as follows:

(In millions of won) 2018 2017

Borrowed securities Stocks W 17,937 37,242 Bonds 189,661 204,390 W 207,598 241,632

HI Investment & Securities Co., Ltd. has lending and borrowing transactions on securities. When borrowing securities from Korea Securities Depository, HI Investment & Securities Co., Ltd. records them in memorandum account as borrowed securities and recognizes them as financial liabilities measured at FVTPL when disposing them. HI Investment & Securities Co., Ltd. also recognizes short-selling as financial liabilities measured at FVTPL.

105

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

43. Risk of Financial Instruments, Continued

(6) Offsetting of financial assets and financial liabilities The details of financial assets or financial liabilities under netting arrangements as of June 30, 2018 and December 31, 2017 are as follows:

(In millions of won) 2018 Net financial assets Related amount : won't be setoff in the Total recognized presented Statement of Financial Position Total recognized financial assets that in the Statement of Financial Received financial financial assets will be setoff Financial Position instruments security Net amount Financial assets Loans and receivables W 88 (86) 2 - - 2 Financial liabilities Financial liabilities carried at amortized cost 8,618 (86) 8,532 - - 8,532

The ‘related amount that won’t be setoff in the consolidated statement of financial position’ is accounted only to the limit of ‘net financial assets presented in the consolidated statement of financial position’.

106

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

43. Risk of Financial Instruments, Continued

(6) Offsetting of financial assets and financial liabilities, continued The details of financial assets or financial liabilities under netting arrangements as of June 30, 2017 and December 31, 2016 are as follows, continued:

(In millions of won) 2017 Net financial assets Related amount : won't be setoff in the Total recognized presented Statement of Financial Position Total recognized financial assets that in the Statement of Financial Received financial financial assets will be setoff Financial Position instruments security Net amount Financial assets Loans and receivables W 1,052 (488) 564 - - 564 Financial liabilities Financial liabilities carried at amortized cost 10,255 (488) 9,767 - - 9,767

107

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

44. Commitments and Contingencies

(1) As of June 30, 2018, the Group has entered into overdraft agreements with KEB Hana Bank and others amounting to W75,000 million and general loan agreements amounting to W1,038,495 million, USD 647,536 thousand and BRL 19,852 thousand.

(2) As of June 30, 2018, the Group has entered into credit facilities agreements such as letters of credit with KEB Hana Bank and others for the Group’s exports and imports totaling W33,000 million, USD 2,929,006 thousand.

(3) As of June 30, 2018, the Group has entered into credit facilities agreements such as pre-shipment credit and others with Export-Import Bank of Korea and others amounting to W2,229,400 million, USD 193,000 thousand.

(4) As of June 30, 2018, three bank notes and one check have been provided to customers as collaterals for the Group’s borrowings from the customers and construction contract performance guarantees.

(5) As of June 30, 2018, the Group is contingently liable for loan guarantees for borrowings of its foreign subsidiaries amounting to W6,008 million, USD 417,153 thousand, EUR 6,981 thousand and BRL 109,956 thousand. The Group has provided performance guarantees in relation to Jazan Refinery and Terminal Project Package 2 (contract amount: USD 342,204 thousand) which is being built by Hyundai Arabia Company LLC., one of the Group’s subsidiaries. The Group also provided performance guarantees in relation to Moho Nord Tension Leg Platform Project (contract amount: USD 889,407 thousand, EUR 50,760 thousand) and Moho Nord Floating Production Unit Project (contract amount: USD 1,410,716 thousand) which are being built by HHI France SAS and HHI Mauritius Ltd., the Group’s subsidiaries. Also, as of June 30, 2018, the Group has provided construction execution guarantees to Hyundai Mipo Dockyard Co., Ltd., a subsidiary, for the construction of oil refinery product carriers (total of 4 units, contract amount: USD 167,600 thousand).

(6) In connection with the Group’s contract performance guarantees as of June 30, 2018, the Group has been provided with maximum guarantees of W2,828,948 million and USD 16,257,727 thousand by various financial institutions. Among these guarantees, Export-Import Bank of Korea and others provide payment guarantees with a limit of USD 11,446,064 thousand to the Group for advances from customers for ship building. For this payment guarantee, the Group pledges its ships under construction and materials for shipbuilding as collaterals.

(7) The Group entered into a consortium agreement on a natural resource development project with various organizations including Korea National Oil Corporation. The Group obtained borrowings for a natural resource development project from the Korea National Oil Corporation (see Note 22). .

108

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

44. Commitments and Contingencies, Continued

(8) As of June 30, 2018, the Group entered into guarantee contracts as follows: (In millions of won) Agreement Issuing entity limits Maturity Business

Underlying asset Gangdong-gu Amsa-dong Cooperative purchase Calling Water Amsa 1st Co., Ltd. apartment Housing Project commitment W 10,000 2020.05.04 GO West 1st Co., Ltd. Pyeongtaek dongsak District Cooperative apartment Housing Project(Local housing 20,000 2020.03.31 association) GO East 2nd Co., Ltd. Hanam Misa(1-3BL) Knowledge Industry

20,000 2020.04.13 Center Hanam Misa hyundai 2nd Knowledge Industry Supreme Misa 1st Co., Ltd. 17,000 2021.04.09 Center Shindaebang-dong Local Housing Association Supreme Dongjak 1st Co., Ltd. 10,000 2022.01.12 Multi-Housing Development Gimpo Han-River new town Knowledge Bilief Gimpo Mirwell Co., Ltd. 18,000 2020.09.15 Industry Center HI LCT Co., Ltd. 30,000 2020.03.20 Haeundae LCT Complex Development Project Beomeo-Dong, Daegu, apartment parcel out JS Beomeo Co., Ltd. 6,500 2019.01.24 balance securitization East Busan food 1st Co., Ltd. 10,000 2019.12.06 East Busan food court development project Jeongja-dong, Bundang, Complex Facility JS Bundang Co., Ltd. 10,000 2022.03.29 development project Geomdan, Incheon, food industrial complex JS Winner Co., Ltd. 12,000 2020.12.28 construction business Busan New Port Officetel Development JS Victory Co., Ltd. 15,000 2020.03.23 Project Busan Bumcheon-dong Officetel Development JS Bumcheon Co., Ltd 20,000 2020.05.18 Project HI Gohyeon 1st Co., Ltd. 20,000 2020.09.12 Geoje Kohyun Port Redevelopment Project Changwon Central Station Area Officetel Hi Square 1st Co., Ltd. 25,000 2019.12.30 Development Project (Refinancing) BDSF 19th Co., Ltd. 20,000 2021.03.29 Segyo, Osan, apartment development project Songdo, International business district HI Songdo 1st 6,300 2021.08.12 residence development project Dongwon Smart Hub 1st Co., Sihwa Industrial Complex officetel

Ltd. 13,800 2019.05.15 construction project High clan 10th Co., Ltd. Haeundae Residence Hotel Development

5,000 2019.09.26 Project High clan 6th Co., Ltd. Yongin Yeoksam District Residence

15,000 2019.07.22 Development Project New Hi Ramada Co., Ltd. Busan station Development of new hotel

34,600 2019.10.25 project Hi Forever 1s Co., Ltd. Yongin Giheung HIGGS Complex facility

5,000 2020.03.02 Development Project HI Kimpo Hakun 1st Co., Ltd. Hakun-6, Kimpo, industrial estate construction

10,000 2022.01.18 business New Hi Chungju The Sharp Co., Cheongju Jamdjbong Park housing

Ltd. 53,900 2020.12.22 development porject New Hi Chungju 2nd Co., Ltd. Cheongju Sejuk-gul Apartment Housing

35,000 2021.02.08 Development Project New HI Ansan Terrace 1st Co., Ltd. 33,000 2020.01.20 Ansan, Terrace house construction Project 109

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

44. Commitments and Contingencies, Continued

(8) As of June 30, 2018, the Group entered into guarantee contracts as follows, continued: (In millions of won) Agreement Issuing entity limits Maturity Business

Underlying asset HI Jijewon 1st Co., Ltd. Pyeongtaek apartment housing development project

purchase W 10,000 2020.06.29 (middle ranking) commitment HI Jijewon 2nd Co., Ltd. Pyeongtaek apartment housing development project

25,000 2020.06.29 (subordinated) Seochen, Yongin, Knwoledge Industry Center HI Ultimate 8th Co., Ltd. 25,000 2019.08.09 construction business GWIMS Co., Ltd. 15,000 2021.03.30 Ulsan GW Industrial Complex Development Business HI Ultimate 6th Co., Ltd. 15,000 2021.11.27 Gyeongju Industrial Complex Development Business Incheon International seafood-town construction HI Legend 3rd Co., Ltd. 20,000 2020.02.27 business (middle ranking) Jinwi 2 Industrial Complex Knowledge Industry Center HI Legend 17th Co., Ltd. 15,000 2020.09.23 Development Project Samsan, Ulsan, Commercial Facility development New HI Samsan Medical Co., Ltd. 17,100 2020.04.08 business

New Hi Sacheon Industry Co., Ltd Sacheon Daejin General Industrial Complex Project 12,500 2021.07.06 New Hi Baegod 1st Co., Ltd 14,900 2019.03.31 Siheung Baegod Officetel Development Project Hi Forever 4th Co., Ltd. 14,000 2021.03.02 Yongin Jukjeon-dong Urban Housing (middle priority) New Hi Suwon hanuelchae 1st Co., Suwon Local Housing Association Bridge loan Ltd. 11,000 2019.03.08 New Hi Suwon hanuelchae 2nd Suwon Local Housing Association Bridge loan Co., Ltd. 10,000 2019.03.08 Jiniforever 1st Co., Ltd. 42,000 2020.11.11 Lotte property insurance subordianted security bond Golden Air 1st Co., Ltd. 20,400 2019.08.08 Asiana Airlines US passenger fares Securitization of hybrid bond payment guaranteed by CJ Smart Start-up Co., Ltd. 12,000 2021.10.28 CGV Airfirst 1st Co., Ltd. 20,800 2022.04.26 Korean Air Future passenger ticket receivables 2020.12.21 Asiana Airlines Future passenger ticket receivables (KB Golden Sky 1st Co., Ltd. 19,400 2021.06.21 card) HI Marine-H Securitized 2nd Co., Ltd. 21,500 2018.12.13 China's HNA Group newbuilding bulk ship financing HI Marine-H Securitized 1st Co., Ltd. 42,500 2018.09.18 China's HNA Group newbuilding bulk ship financing Hiair EM Securitized 1 st Co., Ltd. 4,800 2021.03.18 Acquisition of Emirates Airlines B777 aircraft

863,000 Unsecured loan Pangyo, Seongnam, Partial payment financing for buyout HI Deajang 1st Co., Ltd. apartment housing lot commitment 7, 2 0 0 2018.11.27 Pangyo, Seongnam, Partial payment financing for Smart Index Co., Ltd. 6,300 2018.11.27 apartment housing lot Pangyo, Seongnam, Partial payment financing for OK Ivy 1st Co., Ltd. 6,300 2018.11.27 apartment housing lot

Ivy Global 17th Co., Ltd. 20,500 2023.10.30 Home Plus store operation private equity securitization

40,300

W 903,300

110

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

44. Commitments and Contingencies, Continued

(9) HI Gold Ocean Kmarin No.11 Ship Investment Company entered into a currency interest swap contract for ship building and chartering with KEB Hana Bank. When HI Gold Ocean Kmarin No.11 Ship Investment Company pays settlement amount to KEB Hana Bank upon termination of a contract, HI Gold Ocean Kmarin No.11 Ship Investment Company will be able to get a loan from banks. If these loans are executed, the Group enters into a guarantee contract which ensures that it will provide payment guarantee with a limit of W40,000 million for such loans.

(10) The Group has entered into a loan agreement with ship owners in Panama, and as of June 30, 2018, the outstanding balance is USD 37,143 thousand.

(11) The Group has entered into financial asset transfer agreements with financial institutions in order to sell retained receivables of construction in progress. As of June 30, 2018, details of financial asset transfer agreements are as follows:

(In thousands of foreign currency) Transferred Commitment Name Bank asset limit Running balance

Shuqaiq SABB PAC Reserve USD 309,795 USD 282,960

(12) The Group has received notice of results for tax audit from National Tax Service on October 23, 2015, and the Group is in the process of filling appeals to tax tribunal regarding to W43,350 million out of notified tax amount from the tax audit.

111

HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

44. Commitments and Contingencies, Continued

(13) As of June 30, 2018, the Group has granted a right to purchase shares to the financial investors involved in issuing convertible preferred stocks from its subsidiary, Hyundai Samho Heavy Industries Co., Ltd.

Content Buying company The Parent Company or third party designated by the Parent Company Issue date 2017.07.27 Type of shares to buy Dividend preference convertible shares with voting rights of Hyundai Samho Heavy Industries Co., Ltd. Quantity of shares / The principal of 7,142,858 shares / W400,000 million investment The amount to buy The principal of investment & the sum equivalent to dividends receivable Reason to exercise call option If satisfied with one of the following reasons : 1) In case of the Parent Company exercise a right to postpone the listing as the initial public offering price of Hyundai Samho Heavy Industries fail to meet the standard condition 2) In case of withdrawal of old shares sale as the initial public offering price of Hyundai Samho Heavy Industries fail to meet the criteria 3) From the time investors would be available to sell the shares after the Parent Company and Hyundai Samho Heavy Industries became merged, until two years later 4) In case the investor do not exercise the purchase priority when the Parent Company sells its shares in Hyundai Samho Heavy Industries 5) In case the Parent Company does not exercise its purchase priority when Hyundai Samho Heavy Industries issues new shares at a price lower than the issue price 6) In case the Parent Company is prohibited from buying shares due to the restriction under the decree as a result of Hyundai Samho Heavy Industries merger and split 7) In case the standard financial conditions, such as the obligation to pay dividends, are not

met

(14) As of June 30, 2018, the Parent Company has entered into a share option agreement with Korea Yakult Co., Ltd. (hereinafter, "Investor") for 1,967,387 shares (acquisition price : W31,675 million) of Curexo, Inc. The main contents of the agreement are as follows. Content The Parent Company’s The Parent Company has the right to sell all or a portion of 1,967,387 shares of stock option (Put Curexo, Inc. held by the Parent Company from September 25, 2019 to Option) September 24, 2020 to investors at a price of W5,642 per share. Investors’ stock option The investors have the right to purchase all or a portion of 1,967,387 shares of (Call Option) Curexo, Inc. held by the Parent Company from September 25, 2019 to September 24, 2020, from the Parent Company at a price of W7,335 per share.

(15) As of June 30, 2018, the Parent Company provides a debt guarantee to the limit of W291,500 million for our stock acquisition loan to the amount allocated to employee stockholders association when the capital increase is made. As of June 30, 2018, the total amount of liabilities of the employees' stockholders is W203,261 million.

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45. Litigations

(1) A claim for damages (Seoul Central District Court 2016 gahap 519022) Date of filing October 14, 2015 Litigant Plaintiff: Korea Gas Corporation, Defendant: The Parent Company and 18 other companies Litigation content Korea Gas Corporation filed a lawsuit against Doosan Heavy Industries & Construction Co., Ltd., Hyundai Engineering & Construction Co., Ltd. and 22 other construction companies including the Parent Company regarding to claiming compensation (amounting to W108,000 million) for damage by bidding collusion of first and second main pipe constructions which are ordered by Korea Gas Corporation. Litigation value W108,000 million Litigation status In progress after filing a lawsuit on October 14, 2015 Future litigation schedule Currently, the first trial is in progress. and countermeasures Effect on the Group of a If the Group loses the case, it is expected to incur an additional loss from litigation result compensation. Currently, the impact on the Group’s consolidated financial statements, if any, cannot be reliably estimated.

(2) Ordinary wage lawsuit (Supreme Court 2016 da 7975)

Date of filing December 28, 2012 Litigant Plaintiff: Kyung-hwan Jeong and nine others , Defendant: The Parent Company Litigation content Plaintiff filed a suit claiming that total bonuses should be included in the ordinary wage category and recalculated. Litigation value W630 million The progress of litigation Defendant partially lost the first trial (Ulsan district court 2012 gahap 10108) on February 12, 2015. Defendant totally won the second trial (Busan high court 2015 na 1888) on January 13, 2016. Plaintiff filled appeal and the third trial is in progress (Supreme court 2016 da 7975) on January 28, 2016. Future litigation schedule Currently, the third trial at the supreme court is in progress and the Supreme and countermeasures Court examines a principal laws The effect on the Group If the Group loses the case, it is expected to make an additional loss from as a result of litigation. compensation. Currently, the impact on the Group’s consolidated financial statements, if any, cannot be reliably estimated.

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45. Litigations, Continued

(3) Ordinary wage lawsuit (Supreme Court 2016 da 10544)

Date of filing December 28, 2012 (Date when the Supreme Court received a petition of appeal on February 23, 2016) Litigant Plaintiff: Hyeon-seok Jang and four others, Defendant: Hyundai Mipo Dockyard Co., Ltd. Content of Litigation Five workers working for Hyundai Mipo Dockyard Co., Ltd. filed a lawsuit for seeking wages unpaid during recent 3 years (December 28, 2009~December 27, 2012) because total bonuses, summer vacation bonus, a personal pension subsidy and other wages were excluded in the ordinary wage so legal allowance, incentive, retirement pay and others which are calculated based on the ordinary wage were partially unpaid. Litigation value W240 million The progress of litigation Plaintiff partially won the litigation on February 12, 2015 (Both sides appealed against a decision). Plaintiff lose the second trial on January 13, 2016 (Defendant totally won the trial). Plaintiff filed appeals and the third trial is in progress on January 28, 2016. The Supreme Court allocated justice department in charge of the case on April 5, 2016. The Supreme Court initiated examining a principal laws and other reasons why plaintiff appealed on April 6, 2016. Discussing the issue of the trial is in progress on October 17, 2016. Undergoing a comprehensive review of the issues on October 18, 2017. Future litigation schedule The Supreme Court is examining a principal laws. and countermeasures The effect on the Group If the Group loses the case, it is expected to make an additional loss from as a result of litigation. compensation. Currently, the impact on the Group’s consolidated financial statements, if any, cannot be reliably estimated.

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45. Litigations, Continued

(4) Arbitration for a claim of damages (Kingston Wind / Ipswich) related to wind power turbines (American Arbitration Association / International Center for Dispute Resolution)

Date of filing April 11, 2017 Litigant Plaintiff: Kingston Wind, Ipswich Wind, D&C, Defendant: The Parent Company and Hyundai Corporation. Litigation content The plaintiff makes the arbitration claiming a compensation on the grounds that the Parent Company has made a false representation for the product and intentionally violated the warranty obligation. Litigation value USD 424 million The progress of ICDR arbitration application was confirmed on April 11, 2017. litigation The letter of reply was submitted on June 2, 2017. An agreement was negotiated on October 13, 2017. The letter of reply was submitted on October 13, 2017. The chairman of the arbitration board was appointed on January 29, 2018. Arbitration schedule confirmed on May 22, 2018 Future litigation The document production progress is in progress and will be submitted to the schedule and statement of defense in January 2019 after receiving the statement of claim in countermeasures October 2018. The effect on the Group If the Group loses the case, it is expected to make an additional loss from as a result of litigation compensation. Currently, the impact on the Parent Company’s financial statements, if any, cannot be reliably estimated. However, since the wind power business is under the jurisdiction of Hyundai Electric & Energy Systems Co., Ltd., other related parties, it will be settled later according to the outcome of the lawsuit.

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45. Litigations, Continued

(5) Arbitration for a fire accident at a power plant in Meghnaghat, Bangladesh Date of filing April 14, 2017 (Temporary arbitration in line with UNCITRAL Rule) Litigant Plaintiff: Meghnaghat Power Limited (called the customer below) Defendant: The Parent Company and Hyundai Engineering & Construction Co., Ltd. Litigation content The customer, owner of Meghnaghat fire plant, argued that the large fire accident at the plant on April 21, 2014 was caused by defects in the Uninterruptable Power Supply (UPS) and Turbine Protection System (TPS) supplied by the Parent Company. On April 14, 2017, the customer filed a temporary arbitration in line with UNCITRAL Rule to the Parent Company and Hyundai Engineering & Construction Co., Ltd. that constructed the fire plant. Litigation value More than USD 125 million (Possible to change according to future arbitration paper submission ) The progress of After a temporary suspension of arbitration under the consent of the parties, the litigation Parent Company obtained and reviewed technical data related the accident from the customer, and negotiations are underway for the termination of arbitration. Future litigation The Parent Company is preparing for the resumption of arbitration and trying to schedule and terminate the arbitration at an early date by consent with the customer. countermeasures The effect on the Group If all of the customer’s claims are cited, there is a possibility of damage of litigation as a result of litigation value. Currently, however, the results of arbitration, if any, cannot be reliably estimated. The Group plans to sign an internal agreement related to the cost of arbitration, etc. with Hyundai Engineering & Construction Co., Ltd.

(6) Cancellations for the measure of the bidding eligibility restriction (Supreme Court 2017 du 58779) Date of filing January 14, 2015 Litigant Plaintiff: The Parent Company, Defendant: Korea Electric Power Corporation Litigation content The Korea Electric Power Corporation (KEPCO) has imposed a two-year restriction on the Parent Company for the bidding eligibility. The Parent Company filed a lawsuit claiming cancellation for the measure. Litigation value W50 million The progress of The Parent Company lost the first trial (Gwangju District Court 2015 guhap litigation 10100) on October 8, 2015. The Parent Company lost the second trial (Gwangju High Court 2015 nu 6933) on August 24, 2017. The Parent Company lost the third trial (Supreme Court 2017 du 58779) on December 22, 2017. Future litigation - schedule and countermeasures The effect on the Group The Group is limited to bidding participation in public procurement projects until as a result of litigation November 24, 2019, and restricted from receiving an initial retainer and interim installment from the Defense Acquisition Program Administration.

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45. Litigations, Continued

(7) Arbitration for a claim related to BARZAN project of defects repair in BARZAN construction

Date of filing March 20, 2018 Litigant Plaintiff: Barzan Gas Company Ltd., Defendant: The Parent Company

Litigation content After the Barzan Offshore Project is completed, customer claims the Parent Company for defect compensation to replace the entire pipeline due to defects in the pipeline. Litigation value More than USD 2,600 million The progress of litigation The customer applied for arbitration to the affiliated organization of International Chamber of Commerce (ICC) On March 20, 2018. The Parent Company confirmed receipt notification from ICC On March 24, 2018. The Parent Company submitted an Answer on May 30, 2018, and the customer submitted a Reply on July 3, 2018, respectively. Future litigation schedule Arbitration procedures including the formation of an arbitration tribunal and countermeasures (during the appointment of the chief of arbitration) will be implemented. And the preparation of response logic and written submission will be made through legal and technical advisory groups. The effect on the Group as a The Group has set allowance for repair work through the best estimate and result of litigation can not reasonably predict the outcome of the arbitration at this time.

(8) Local agent litigation related to bidding of Egina FPSO

Date of filing February 23, 2018 Litigant Plaintiff: Contraco Limited (The Parent Company’s local agent at the time of bid), Defendant: The Parent Company and three other firms Litigation content Contraco Limited , the Parent Company’s local agent, filed a lawsuit against the client, the Parent Company, and the contractor argued that during the bidding and ordering process of the Egina FPSO in Nigeria, Contraco Limited could not get a fair profit due to a serious violation of the related parties' public procurement act in Nigeria and suffered financial loss. Litigation value More than USD 31 million The progress of litigation Contraco Limited filed a lawsuit on February 23, 2018 (Unclear why the Parent Company were included in the defendant) The Parent Company Submitted notice of appointment of agent (Nigeria law firm ACAS-LAW) on April 05, 2018 The Parent Company Submitted notice of appeal on April 18, 2018. First trial to discuss future schedule and procedures on April 19, 2018. Court hearing regarding the Notice of Appeal on June 21, 2018. Future litigation schedule The Parent Company will submit written answer and statement of witness. and countermeasures The effect on the Group as a If the Group loses the case, it is expected to make an additional loss from result of litigation compensation. Currently, the impact on the Group’s financial statements, if any, cannot be reliably estimated.

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45. Litigations, Continued

In addition to the cases mentioned above, the Group is currently a defendant in 41 lawsuits involving claims amounted to W128,900 million. Currently, the impact on the Group’s consolidated financial statements, if any, cannot be reliably estimated.

46. Related Parties

(1) Transactions between the Parent Company and its subsidiaries are eliminated in the preparation of the consolidated financial statements and the related parties as of June 30, 2018 are as follows:

Company Main business

Company with significant Hyundai Heavy Industries Holdings Co., Manufacturing of Industrial influence Ltd. robot and Holding company Others (large-scale Hyundai Electric & Energy Systems Co., Sale and manufacture of corporate conglomerate) Ltd. industrial electric equipment

Hyundai Construction Equipment Co., Ltd. Sale and manufacture of machinery equipment for construction Hyundai Oilbank Co., Ltd. Manufacturing of petroleum products

Hyundai Global Service Engineering services

Other related parties of Hyundai Electric & Other business Energy Systems Co., Ltd.

Other related parties of Hyundai Other business Construction Equipment Co., Ltd.

Other related parties of Hyundai Oilbank Other business Co., Ltd.

Other related parties of Hyundai Global Other business Service

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46. Related Parties, Continued

(2) Significant transactions for the six-month periods ended June 30, 2018 and 2017 between the Parent Company and its associates or joint ventures are as follows:

(In millions of won) 2018

Sales and other(*5) Purchases and other(*5)

Purchase of

Purchase of Property, Sales Dividends Raw Plant and Others (*1) Income materials Equipment purchase

Company with significant influence

Hyundai Heavy Industries Holdings Co., Ltd. W 1,753 - 5 - -

Associates and joint ventures(*2)

Wärtsilä-Hyundai Engine Company Ltd. - 21,822 9,867 - -

HHI China Investment Co., Ltd. 75 - 88 - 356 Hyundai Financial Leasing Co., Ltd. - 1,858 - - - International Maritime Industries Company 3,120 - - - - Others 157 2,796 12 - 53 3,352 26,476 9,967 - 409 Other related parties (large-scale corporate conglomerate) Hyundai Electric & Energy Systems Co., Ltd.(*3) 24,576 - 85,615 - 65 Hyundai Construction Equipment Co., Ltd.(*3) 39,932 - 23,693 42 32 Hyundai Oilbank Co., Ltd.(*3) 14,777 - 66,682 - 146

Hyundai Global Service(*3) 10,880 - 7,635 - 26,520 BMC Hyundai S.A.(*4) 3,456 - - - -

Others 572 - 32 - 360

94,193 - 183,657 42 27,123

W 99,298 26,476 193,629 42 27,532 (*1) Including sales of property, plant and equipment and interest income. (*2) Including associates and joint ventures’ subsidiaries. (*3) For the year ended December 31, 2017, classified to a large-scale corporate conglomerate as a result of spin-off and disposal (see Note 49). (*4) For the six-month periods ended June 30, 2018, the Group sold its stake in BMC Hyundai S.A., and the amount is the transaction amount by the date of sale. (*5) Amounts substituted for profit from discontinued operations are included.

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46. Related Parties, Continued

(2) Significant transactions for the six-month periods ended June 30, 2018 and 2017 between the Group and its associates or joint ventures are as follows, continued:

In addition to the above transactions, the details of disposal transactions of subsidiaries with related parties of the Group are as follows: (In millions of won) Disposal Trading partner Disposal assets Disposal companies price Particular Hyundai Construction Investments in HHI China Investment Co., Ltd. Disposal of Equipment Co., Ltd. subsidiaries 221,600 60% shares Hyundai Electric & Energy Investments in Hyundai Power Transformers Disposal of all Systems Co., Ltd. subsidiaries USA, Inc. 30,900 shares

In addition, the Group sold 480,599 certificate of preemptive right to new stocks of Hyundai Heavy Industries Co., Ltd., which was owned by its subsidiary Hyundai Mipo Dockyard Co., Ltd., to Hyundai Heavy Industries Holdings Co., Ltd., a related party, amounting to W12,395 million.

For the six-month periods ended June 30, 2018, the Group has paid-in capital increase amounting to W337,222 million received from Hyundai Heavy Industries Holdings Co., Ltd., a related party.

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46. Related Parties, Continued

(2) Significant transactions for the six-month periods ended June 30, 2018 and 2017 between the Group and its associates or joint ventures are as follows, continued:

2017 (In millions of won) Sales and other(*4) Purchases and other(*4) Raw Dividend materials Others Sales Income purchased purchases Associates and joint ventures(*1): Wärtsilä-Hyundai Engine Company Ltd. W 883 13,800 - - BMC Hyundai S.A. 19,417 - - - Others 56 425 216 23 20,356 14,225 216 23 Large-scale corporate conglomerate Hyundai Robotics Co., Ltd. 915 - 800 3 Hyundai Electric & Energy Systems Co., Ltd. 30,071 - 23,073 188 Hyundai Construction Equipment Co., Ltd. 27,586 - 47,222 1,636 Hyundai Oilbank Co., Ltd.(*2) 4,557 - 39,336 128 Hyundai Oil Terminal Co., Ltd.(*2) 108 - - - Hyundai Global Service(*2) 6,767 - 4,622 8,269 Hyundai Global Service Europe B.V. (Formerly Hyundai Hi-Power Service Europe B.V.(*2) 12 - 15 - Hyundai Construction Equipment Americas.,Inc.(*2) 323 - - - Hyundai Cosmo Petrochemical Co., Ltd.(*2,3) 466,452 - 293,850 381 Hyundai and Shell Base Oil Co., Ltd.(*2,3) 140,862 30,000 43,017 - Others 57 - 1,903 - 677,710 30,000 453,838 10,605 W 698,066 44,225 454,054 10,628

(*1) They include associates and joint ventures’ subsidiaries. (*2) For the year ended December 31, 2017, classified to a large-scale corporate conglomerate from the subsidiaries, associates and joint ventures as a result of the spin-off. (see Note 49). (*3) Including transaction of Hyundai Oilbank Co., Ltd. and others which were excluded from the Group due to spin off for the year ended December 31, 2017 (*4) Amounts substituted for profit from discontinued operations are included.

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46. Related Parties, Continued

(2) Significant transactions for the six-month periods ended June 30, 2018 and 2017 between the Group and its associates or joint ventures are as follows, continued:

In addition to above transaction, the Group sold its entire stake in Hyundai Global Service Europe BV, a subsidiary, to Hyundai Global Service Co., Ltd. (disposal amount: W7,462 million) and sold 300 shares of Electric Corporation Credit Union, which is an available-for-sale financial asset, to Hyundai Electric & Energy System Co., Ltd. (Sale amount: W97 million).

(3) Outstanding balances as of June 30, 2018 and December 31, 2017 between the Group and its associates or joint venture are as follows:

(In millions of won) 2018 Trade and other receivables Trade and other payables (*2) (*2) Trade Other Trade other Receivable receivables Payables payables Company with significant influence W Hyundai Heavy Industries Holdings Co., Ltd. 841 90 5 358 Associates and joint ventures(*1) Wärtsilä-Hyundai Engine Company Ltd. - 2,769 6 - HHI China Investment Co., Ltd. - 41 139 - International Maritime Industries Company 3,374 - - - Others - 24 - - 3,374 2,834 145 - Other related parties

(large-scale corporate conglomerate) Hyundai Electric & Energy Systems Co., Ltd. 4,540 1,172 50,774 1 Hyundai Construction Equipment Co., Ltd. 4,962 1,748 29,013 38 Hyundai Oilbank Co., Ltd.(*2) 1,760 167 18,295 58 Hyundai Global Service(*2) 2,843 3,391 11,458 395 Others 227 234 1 - 14,332 6,712 109,541 492 W 18,547 9,636 109,691 850 (*1) Including associates and joint ventures’ subsidiaries. (*2) Including amount of substitution to assets and liabilities held for sale.

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46. Related Parties, Continued

(3) Outstanding balances as of June 30, 2018 and December 31, 2017 between the Group and its associates or joint venture are as follows, continued:

(In millions of won) 2017 Trade and other Trade and other receivables(*3) payables(*3) Trade Other Trade other Receivable receivables Payables payables Company with significant influence W Hyundai Heavy Industries Holdings Co., Ltd. 406 14 2,997 7,432 Associates and joint ventures(*1) Wärtsilä-Hyundai Engine Company Ltd. - 1,828 - - BMC Hyundai S.A. 87,869 - 39 - 87,869 1,828 39 - Other related parties

(large-scale corporate conglomerate) Hyundai Electric & Energy Systems Co., Ltd. 9,382 2,062 99,678 11,352 Hyundai Construction Equipment Co., Ltd. 16,426 2,663 70,661 3,036 Hyundai Oilbank Co., Ltd.(*2) 280 - 29,741 116 Hyundai Global Service(*2) 3,014 471 9,057 987 Others 291 88 158 409 29,393 5,284 209,295 15,900 W 117,668 7, 1 2 6 212,331 23,332 (*1) Including associates and joint ventures’ subsidiaries. (*2) Classified as a large-scale corporate conglomerate in its subsidiaries as a result of spin-off and disposal for the year ended December 31, 2017 (see Note 49). (*3) Including amount of substitution to assets and liabilities held for sale.

(4) Details of guarantees which the Group provides for related parties as of June 30, 2018 are as follows:

(In thousands of foreign currency) Type of Guaranteed Guarantee recipient Provider guarantees Currency amount

Other related parties Hyundai Power Transformers USA, Inc. Woori Bank and others Payment USD 60,000 Capine Corporation Performance USD 19,839 Hyundai Heavy Industries Co. Bulgaria BNP Paribas S.A., Sofia and others Payment USD 30,000 Performance EUR 4,981 Hyundai Construction Equipment India Private Standard Chartered Bank and others Payment Ltd. USD 40,000 Hyundai Technologies Center Hungary kft. Allianz Hungaria Zrt Performance EUR 2,000

USD 149,839 EUR 6,981

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46. Related Parties, Continued

(5) Details of collaterals which the Group provided for the related parties as of June 30, 2018 are as follows: (In millions of won) Associate Pledged asset Book value Amount Pledger

Pyeongchang wind power Co., Ltd. Investments in associates - Woori bank and Pyeongchang wind power Co., others Ltd. W 4,245 79,200

(6) Compensation for key management of the Group for the six-month periods ended June 30, 2018 and 2017 is W3,776million and W5,434 million, respectively. Key management is defined as directors and internal auditors who have important roles and responsibilities involving the planning, operation and control of the Group.

47. Shares in Unconsolidated Structured Companies

(1) Non-consolidated structured companies is taking into account the nature, purpose, activities of the structured entity and how the structured entity is financed, entered into such a structured asset-backed security, structured finance, investment fund and trust agreement with structured company. Shares in non- consolidated structured company fails to retain its dominance pursuant to K-IFRS NO.1110 are held by the Group is classified as asset-backed security, structured finance and investment fund according to the nature and purpose of the structured company, the nature of the equity and risk is as follows:

Nature of structured company Purpose and Activities Main financing method Asset-backed security Financing through asset-backed security Issuance of ABCP and securitization Structured finance Real estate development project Investment and borrowing (including Social Overhead Capital) Investment fund and trust Asset management and distribution Issuance of beneficiary certificates

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47. Shares in Unconsolidated Structured Entities, Continued

(2) The carrying amount of the assets and liabilities recognized in the line items of the consolidated financial statements and the Group’s maximum exposure to loss from its interests in unconsolidated structured entities.

(In millions of won) Asset-based Structured Investment fund security finance and trust Total

Asset Securities W - 755 43,204 43,959 Investments in associates - - 2,219 2,219 - 755 45,423 46,178 Off balance account Purchase agreements 903,300 - 40,000 943,300 Maximum amount of exposure W 903,300 755 85,423 989,478 Methods to determine Purchase Book value Book value and the maximum exposure agreement, payment

Lending firm guarantee commitment

48. Non-current asset held for sale

(1) Disposal resolution of subsidiaries (i) Disposal of HI Investment & Securities Co., Ltd. HI Investment & Securities Co., Ltd., a subsidiary, was classified as non-current assets held for sale on November 9, 2017, according to the Board’s decision. The Group has been in the process of selling HI Investment & Securities Co., Ltd. in order to comply with the restrictions on the holding company's activities under the Fair Trade Act, and it is expected to be sold after approval by the financial authority.

(ii) Disposal of HHI China Investment Co., Ltd. HHI China Investment Co., Ltd, a subsidiary, was classified as non-current assets held for sale on December 14, 2017, according to the Board’s decision. In order to enhance the business efficiency and reconsider synergy of Hyundai Construction Equipment Co., Ltd., the newly established subsidiary, the Parent Company decided to sell 60% of the shares of HHI China Investment Co., Ltd. and disposed of them in January 2018.

(2) Impairment loss on disposal group The amount of the impairment is allocated primarily to goodwill in the disposal group and the residual amount is allocated to the carrying amount of property, plant and equipment and others (see Note 17).

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48. Non-current asset held for sale, Continued

(3) Assets and liabilities of disposal group Assets and liabilities held for sale as of June 30, 2018 and December 31, 2017 are summarized as follows:

(In millions of won) 2018 2017

Cash and cash equivalents W 109,478 129,507 Short-term financial assets 4,357,108 3,700,082 Trade and other receivables 1,587,255 1,340,330 Inventories - 120,456 Other current assets - 5,234 6,053,841 5,295,609 Total current assets

Investments in associates(*1) - 3,574 Long-term financial assets 263,259 304,340 Long-term trade and other receivables 30,196 81,508 Property, plant and equipment(*2) 203,198 90,741 Intangible assets - 7,805 Other non-current assets - 17,250 Deferred tax assets 16,835 46,198 Total non-current assets 513,488 551,416 Total assets held for sale 6,567,329 5,847,025

Short-term financial liabilities 4,402,124 3,986,074 Trade and other payables 825,410 310,297 Contract liabilities 22 - Advances from customers - 3,517 Income tax payable 5,052 3,820 Other current liabilities 11,127 18,823 Total current liabilities 5,243,735 4,322,531

Long-term financial liabilities 493,399 445,293 Liabilities for defined benefit plans 3,245 1,587 Long-term provisions 11,224 22,464 Deferred tax liabilities 26,717 82,948 Other non-current liabilities - 3,068 Total non-current liabilities 534,585 555,360 Total liabilities held for sale W 5,778,320 4,877,891

(*1) For the year ended December 31, 2017, all shares of Hyundai Primorye Ltd., were classified to non- current assets held for sale as the Group had decided to sell the entire interest and the selling process was completed in April 2018.

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48. Non-current asset held for sale, Continued

(3) Assets and liabilities of disposal group, continued Assets and liabilities held for sale as of December 31, 2018 and 2017 are summarized as follows, continued:

(*2) The Group classified part of land and buildings as non-current assets held for sale if the Group had decided to sell those assets for the purpose to improve the financial structure.

49. Discontinued operations

(1) General (i) Spin-off The Group was spun-off to an existing entity, Hyundai Heavy Industries Co., Ltd. which engages in shipbuilding segment, and newly established entities, Hyundai Electric & Energy Systems Co., Ltd., Hyundai Construction Equipment Co., Ltd., and Hyundai Heavy Industries Holdings Co., Ltd. which engage in electro electric systems segment, construction equipment segment, and robotics/financial services segment, respectively, on April 1, 2017. The details of the spin-off are as follows. The newly established entities and the existing entity from the spin-off are jointly liable for the liability of the group before the spin-off in accordance with Article 530, paragraph 9.1 of the Commercial law. Companies Main Business Existing entity Hyundai Heavy Industries Segments that were not subject to the spin-off, Co., Ltd. such as shipbuilding, offshore and industrial plant engineering, engine and machinery, etc. Newly established Hyundai Electric & Energy Electro electronic systems segment entities Systems Co., Ltd. Hyundai Construction Construction equipment segment Equipment Co., Ltd. Hyundai Heavy Industries Robot and financial segment Holdings Co., Ltd.

(ii) Disposal of HI Investment & Securities Co., Ltd. For observance of limit on holding company’s action regulated in Monopoly Regulation and Fair Trade Act, the Group decided to sell whole shares of HI Investment & Securities Co., Ltd., in November, 2017.

(iii) Disposal of HHI China Investment Co., Ltd. For business efficiency and improvement of synergy of Hyundai Construction Equipment Co., Ltd., newly established company by the spin-off, the Parent Company decided to sell 60% share of HHI China Investment Co., Ltd. to Hyundai Construction Equipment Co., Ltd., in December, 2017 and the selling process was completed in in January 2018.

The consolidated statement of comprehensive income presented for a comparative purpose has been restated to present the discontinued operations separately from continuing operations.

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HYUNDAI HEAVY INDUSTRIES CO., LTD. AND SUBSIDIARIES Notes to the Condensed Consolidated Interim Financial Statements June 30, 2018 and 2017 (Unaudited)

49. Discontinued operations, Continued

(2) Profit from discontinued operations included in the consolidated statements of comprehensive income for the six-month periods ended June 30, 2018 and 2017 is as follows:

(In millions of won) 2018 2017 Three-month Six-month Three-month Six-month period period period period

Sales W 203,722 404,500 383,444 6,116,223 Cost of sales 123,002 248,487 292,565 5,278,483 Gross profit 80,720 156,013 90,879 837,740 Selling, general and administrative expenses 59,624 114,274 87,509 386,335 Operating profit 21,096 41,739 3,370 451,405 Finance income 830 2,139 2,444 195,283 Finance costs 219 219 2,587 205,155 Other non-operating income 6,089 101,410 1,665 10,340 Other non-operating expenses (4,753) 8,380 285,617 292,808 Share of profit (loss) of equity accounted investees 1,177 1,720 (1,121) 30,996 Profit (loss) before income tax 33,726 138,409 (281,846) 190,061 Income tax expense (benefit) 10,321 (42,835) (168,338) (34,937) Discontinued operation profit (loss) 23,405 181,244 (113,508) 224,998 Gain on disposal of discontinued operations - - 2,545,341 2,545,341 Profit from discontinued operations W 23,405 181,244 2,431,833 2,770,339

(3) Cash flows from discontinued operations for the six-month periods ended June 30, 2018 and 2017 are as follows:

(In millions of won) 2018 2017

Net cash from operating activities W (518,248) (447,970) Net cash from investing activities 10,665 (142,870) Net cash from financing activities 521,516 565,120 Net cash flow from discontinued operations W 13,933 (25,720)

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49. Discontinued operations, Continued

(4) Assets and liabilities transferred to the newly established entities from the spin-off as of December 31, 2017 are as follows:

(In millions of won) 2017 Cash and cash equivalents W 1,077,148 Trade and other receivables 2,407,416 Inventories 2,588,586 Other current assets 322,594 Total current assets 6,395,744

Investments in associates 309,659 Investment property 10,635 Property, plant and equipment 6,738,373 Intangible assets 1,619,386 Other non-current assets 132,453 Total non-current assets 8,810,506 Total assets 15,206,250

Short-term financial liabilities 3,461,078 Trade and other payables 2,064,423 Other current liabilities 397,009 Total current liabilities 5,922,510

Long-term financial liabilities 2,892,168 Liabilities for defined benefit plans 46,201 Long-term provisions 215,974 Other non-current liabilities 420,460 Total non-current liabilities 3,574,803 Total liabilities 9,497,313 Book value of net assets W 5,708,937

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49. Discontinued operations, Continued

(5) Gain on disposal of discontinued operations In case of distributions of non-cash assets for free of charge in which all owners of the same class of equity instruments are treated equally, the Parent Company recognizes dividends payable measured at fair value when the Parent Company declares a distribution and has an obligation to distribute the assets and liabilities to the owners. Accordingly, the Group determined the fair value of the non-cash assets to be distributed based on the estimates and an amount calculated under the valuation model from professional judgment of independent external valuation firm. The Group recognized the difference between the amount of non-cash asset to be distributed at the time of distribution and the recognized dividends payable as a gain on disposal of discontinued operations.

(In millions of won) Amount Fair value of segments spun-off (A) W 7,347,900 Carrying amount of segments spun-off (B) (5,708,937) Non-controlling interests of segments spun-off (C) 894,413 Accumulated other comprehensive income of segments spun-off (D) 11,965 Gain on disposal of discontinued operations (A+B+C+D) W 2,545,341

Gain on disposal of discontinued operations does not impact on increasing capital because it has no cash inflow, and the fair value measurement of non-cash assets is recorded as deduction of capital(other capital adjustment).

Key assumptions used in measuring the fair value of non-cash assets are as follows: (In percentage) Discount rate(%) Electro electronic systems segment 10.07 Construction equipment segment 10.37 Robot and financial segment 9.95

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50. Subsequent Events

(1) In-kind investment in power plant / industrial boiler business On June 21, 2018, the Parent Company decided to establish a subsidiary through in-kind investment in the power plant / industrial boiler business, which belongs to the plant division, and the establishment procedure was completed on August 6, 2018.

(2) Reduction in capital stock by payments of cash of Wärtsilä-Hyundai Engine Company Ltd. On July 23, 2018, after the end of the reporting period, the Board of Directors approved the stock redemption (transaction amount: W16,965 million) for the shares held in the joint venture, Wärtsilä-Hyundai Engine Company Ltd.

51. Restatement of consolidated interim financial statements for the six-month periods ended June 30, 2017

The Group restated its condensed consolidated interim financial statements for the six-month period ended June 30, 2017 due to a change in the scope of consolidation for the year ended June 30, 2017, the details are as follows:

Among decision-making requirements related to the management of Hyundai Shell Base Oil, the joint decision made by partner The Shell Petroleum Company Limited has been determined to be significant and therefore, it was decided that Hyundai Shell Base Oil Co., Ltd. should be classified as a joint venture from a subsidiary. As a result the consolidated financial statements was restated.

(1) Condensed consolidated interim statements of financial position as of June 30, 2017

(In thousands of won) 2017 Previously Restatement reported Restated adjustments

Current assets W 19,220,602,522 19,220,602,522 - Non-current assets 13,929,214,455 13,929,214,455 - Total assets 33,149,816,977 33,149,816,977 - Current liabilities 18,114,534,202 18,114,534,202 - Non-current liabilities 2,288,210,592 2,288,210,592 - Total liabilities 20,402,744,794 20,402,744,794 - Equity attributable to owners of the Company 11,535,366,731 11,535,366,731 - Non-controlling interests 1,211,705,452 1,211,705,452 - Total equity 12,747,072,183 12,747,072,183 - Total liabilities and equity W 33,149,816,977 33,149,816,977 -

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51. Restatement of consolidated interim financial statements for the six-month period ended June 30, 2017, Continued

(2) Condensed consolidated interim statements of comprehensive income for the six-month period ended June 30, 2017 1) Condensed consolidated interim statements of comprehensive income as change in scope of consolidation for the six-month period ended June 30, 2017

(In thousands of won) 2017 Previously reported Restated Restatement adjustments Three-month Six-month Three-month Six-month Three-month Six-month period period period period period period

Sales W 4,629,216,857 9,437,006,677 4,629,216,857 9,437,006,677 - - Cost of sales 4,043,605,739 8,361,683,908 4,043,605,739 8,361,683,908 - - Gross profit 585,611,118 1,075,322,769 585,611,118 1,075,322,769 - -

Selling, general and administrative expenses 433,853,675 760,107,928 433,853,675 760,107,928 - - Operating profit 151,757,443 315,214,841 151,757,443 315,214,841 - -

Finance income 619,853,640 1,265,946,388 619,853,640 1,265,946,388 - - Finance costs 462,276,611 665,654,481 462,276,611 665,654,481 - - Other non-operating income 109,426,872 55,030,070 109,426,872 55,030,070 - - Other non-operating expenses 409,726,699 781,959,438 409,726,699 781,959,438 - - Share of profit of equity accounted investees 4,868,443 7,038,097 4,868,443 7,038,097 - - Profit before income taxes 13,903,088 195,615,477 13,903,088 195,615,477 - - Income tax benefit (55,309,800) (9,482,560) (55,309,800) (9,482,560) - - Profit from continuing operations 69,212,888 205,098,037 69,212,888 205,098,037 - - Profit from discontinued operations 2,545,833,254 2,872,267,677 2,545,340,710 2,862,118,580 (492,544) (10,149,097) Profit for the period W 2,615,046,142 3,077,365,714 2,614,553,598 3,067,216,617 (492,544) (10,149,097) Other comprehensive income 177,271,175 137,214,904 177,271,175 137,214,904 - - Total comprehensive income for the period W 2,792,317,317 3,214,580,618 2,791,824,773 3,204,431,521 (492,544) (10,149,097)

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51. Restatement of consolidated interim financial statements for the six-month period ended June 30, 2017, Continued

(2) Condensed consolidated interim statements of comprehensive income for the six-month period ended June 30, 2017, continued: 2) Condensed consolidated interim statements of comprehensive income as discontinued operations for the six-month period ended June 30, 2017 The consolidated statement of comprehensive income separately presented as continuing and discontinued operations, and the consolidated statement of comprehensive income for the six-month period ended June 30, 2017 was restated. The consolidated statements of comprehensive before and after restating related to separately presentation of continuing and discontinued operation reflected the above change of scope of consolidation scope described above.

(In thousands of won) 2017 Before reclassification After reclassification Amount of change Three-month Six-month Three-month Six-month Three-month Six-month period period period period period period

Sales W 4,629,216,857 9,437,006,677 4,245,773,300 8,555,010,540 (383,443,557) (881,996,137) Cost of sales 4,043,605,739 8,361,683,908 3,751,040,635 7,663,788,027 (292,565,104) (697,895,881) Gross profit 585,611,118 1,075,322,769 494,732,665 891,222,513 (90,878,453) (184,100,256)

Selling, general and administrative expenses 433,853,675 760,107,928 346,345,021 601,321,485 (87,508,654) (158,786,443) Operating profit 151,757,443 315,214,841 148,387,644 289,901,028 (3,369,799) (25,313,813)

Finance income 619,853,640 1,265,946,388 617,774,704 1,259,140,941 (2,078,936) (6,805,447) Finance costs 462,276,611 665,654,481 460,054,454 659,345,626 (2,222,157) (6,308,855) Other non-operating income 109,426,872 55,030,070 108,014,940 50,915,400 (1,411,932) (4,114,670) Other non-operating expenses 409,726,699 781,959,438 124,363,656 495,172,661 (285,363,043) (286,786,777) Share of profit of equity accounted investees 4,868,443 7,038,097 5,989,435 8,446,473 1,120,992 1,408,376 Profit before income taxes 13,903,088 195,615,477 295,748,613 453,885,555 281,845,525 258,270,078 Income tax expense (benefit) (55,309,800) (9,482,560) 113,028,106 157,007,445 168,337,906 166,490,005 Profit from continuing operations 69,212,888 205,098,037 182,720,507 296,878,110 113,507,619 91,780,073 Profit from discontinued operations 2,545,340,710 2,862,118,580 2,431,833,091 2,770,338,507 (113,507,619) (91,780,073) Profit for the period W 2,614,553,598 3,067,216,617 2,614,553,598 3,067,216,617 - - Other comprehensive income (loss) 177,271,175 137,214,904 189,236,629 149,180,359 11,965,454 11,965,455 Total comprehensive income for the period W 2,791,824,773 3,204,431,521 2,803,790,227 3,216,396,976 11,965,454 11,965,455

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51. Restatement of consolidated interim financial statements for the six-month period ended June 30, 2017, Continued

(3) Condensed consolidated interim statements of changes in equity for the six-month period ended June 30, 2017

The condensed consolidated interim statements of changes in equity was restated because the condensed consolidated interim statements of financial position and the condensed consolidated interim statements of comprehensive income for the six-month periods ended June 30, 2017 were restated.

(4) Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2017

(In thousands of won) 2017 Previously Restatement reported Restated adjustments Cash flows from operating activities W 1,083,386,624 1,060,472,883 (22,913,741) Cash flows from investing activities 226,447,756 241,569,899 15,122,143 Cash flows from financing activities (1,712,797,085) (1,704,704,699) 8,092,386 Substitution of assets held for sale - - - Effects of exchange rate changes on cash And cash equivalents (6,198,197) (6,124,288) 73,909 Net increase (decrease) in cash and cash Equivalents (409,160,902) (408,786,205) 374,697 Cash and cash equivalents at January 1 4,326,867,973 4,326,493,276 (374,697) Cash and cash equivalents at June 30 W 3,917,707,071 3,917,707,071 -

(5) Notes to the condensed consolidated interim financial statements for the six-month period ended June 30, 2017

Notes to the condensed consolidated interim financial statements for the six-month period ended June 30, 2017 was also restated, in relation to restatement of the condensed consolidated interim financial statements of financial position, the condensed consolidated interim statements of comprehensive income, the condensed consolidated interim statements of changes in equity and the condensed consolidated interim statement of cash flows for the six-month period ended June 30, 2017.

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