Samsung Engineering Co., Ltd. and Subsidiaries

Consolidated Financial Statements December 31, 2019 and 2018 Samsung Engineering Co., Ltd. and Subsidiaries Index December 31, 2019 and 2018

Pages

Independent Auditor’s Report...... 1 - 4

Consolidated Financial Statements

Consolidated Statements of Financial Position ...... 5 - 6

Consolidated Statements of Profit or Loss ……………………………………. 7

Consolidated Statements of Comprehensive Income...... 8

Consolidated Statements of Changes in Equity ...... 9 - 10

Consolidated Statements of Cash Flows ...... 11

Notes to the Consolidated Financial Statements...... 12 - 102

Independent Auditor’s Report

(English Translation of a Report Originally Issued in Korean)

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

Opinion We have audited the accompanying consolidated financial statements of Samsung Engineering Co., Ltd. and its subsidiaries (collectively referred to as the "Group"), which comprise the consolidated statements of financial position as at December 31, 2019 and 2018, and the consolidated statements of profit and loss, the consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS).

Basis for Opinion We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements of the Republic of Korea that are relevant to our audit of the consolidated financial statements and we have fulfilled our other ethical responsibilities in accordance with the ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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

Revenue recognition based on the input method

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

As explained in Note 2.17(Revenue recognition) to the consolidated financial statements, when the outcome of a construction contract can be estimated reliably, the contract revenue and contract costs shall be recognized by reference to the progress of the construction contract activity at the end of the reporting period. Moreover, the Group determines the progress rate of construction contract by using the methods that can reliably measure the work performed for the related construction. Therefore, the progress rate of contract is measured by the proportion that accumulated contract cost generated to date bear to the estimated total contract costs except for the contract costs that do not reflect work performed.

As explained in Note 3(Critical Accounting Estimates and Assumptions) to the consolidated financial statements, total contract revenue is measured based on the initial amount of revenue agreed in the contract. However, the measurement of contract revenue is affected by a variety of uncertainties that depend on the outcome of future event; for example, the amount of contract revenue may increase as a result of variations in contract work, claims and inventive payments, or may decrease as a result of penalties arising from delays caused by the Group in the course of completing the contract. The construction revenue is affected by the progress rate measured based on the accumulated contract cost generated, and the total contract cost is estimated based on future estimates such as materials cost, labor cost, and construction period.

Moreover, as explained in Note 23(Engineering Contracts) to the consolidated financial statements, due to the nature of construction contract, the uncertainty of estimating total contract revenue increases and there is a possibility that changes in estimation of total contract revenue and total contract cost will affect the profit or loss for the year (or for the succeeding year); therefore, we identified revenue recognition based on the input method as a significant risk.

How our audit addressed the Key Audit Matter

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

ㆍEvaluating the design and operation of internal control of the Group in relation to entering into new contracts and modifying the contract amount.

ㆍEvaluating the design and operation of internal control of the Group in relation to initial estimation and modification of estimated total contract cost.

ㆍIT auditing for input cost aggregation and calculation of progress rate by project.

ㆍInspecting new contracts and contracts with modification of contract amount

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

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

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

ㆍPerforming analytical review of current project progress and significant changes for key projects.

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Other Matter

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

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

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

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

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

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

· - Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. · - Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. · - Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

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· - Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. · - Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. · - Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

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

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

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

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

Seoul, Korea March 11, 2020

This report is effective as of March 11, 2020, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

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Samsung Engineering Co.,Ltd. and Subsidiaries Consolidated Statements of Financial Position December 31, 2019 and 2018

(in thousands of Korean won) Notes 2019 2018

Assets Current assets Cash and cash equivalents 4,5,7 ￦ 589,512,194 ￦ 369,360,461 Short-term financial instruments 5,7 150,447,557 51,245,796 Trade receivables 7,8,9 1,214,759,547 1,383,112,329 Due from customers for contract work 7,9 325,844,674 595,208,836 Other receivables 7,9 45,086,252 109,903,081 Current portion of financial assets at amortized cost 7 101,850 152,345 Derivative financial instruments 6,7,33 6,413,547 2,065,909 Firm commitment assets 16,098,973 2,421,843 Advanced payments 9 249,939,014 169,031,616 Prepaid expenses 9 74,267,677 113,407,473 Prepaid construction expenses 9 11,316,233 32,165,238 Short-term loan receivable 7,9 33,012,903 20,864,656 Other current assets 7,9 142,272,794 106,436,188 Current tax assets 27 24,705,127 17,202,155 2,883,778,342 2,972,577,926

Non-current assets Financial assets measured at fair value through other comprehensive income 6,7,10 31,195,681 31,106,861 Financial assets measured at fair value through profit or loss 6,7,10 6,989,478 6,925,147 Financial assets at amortized cost 7,11 734,490 466,720 Derivative financial instruments 6,7,33 3,332,157 694,365 Firm commitment assets 1,576,894 3,730,354 Investments in associates and joint ventures 12 77,523,305 44,046,442 Property, plant and equipment 15 428,010,738 397,918,404 Intangible assets 16 35,689,176 54,811,133 Investment properties 14 187,750,888 190,497,925 Long-term guarantee deposits provided 5,7 115,690,775 119,272,168 Long-term prepaid expenses 671,944 1,200,417 Other non-current assets 5,7,9 16,441,086 14,877,677 Deferred tax assets 27 755,862,882 790,387,612 1,661,469,494 1,655,935,225 Total assets ￦ 4,545,247,836 ￦ 4,628,513,151

5 Samsung Engineering Co.,Ltd. and Subsidiaries Consolidated Statements of Financial Position December 31, 2019 and 2018

(in thousands of Korean won) Notes 2019 2018

Liabilities Current liabilities Trade payables 7 ￦ 515,715,496 ￦ 502,477,317 Other payables 7 210,876,933 321,354,441 Borrowings and other financial liabilities 7,8,17 148,179,055 438,544,447 Current portion of bonds 7,17 - 80,000,000 Current portion of long-term borrowings 7,17 - 39,000,000 Due to customers for contract work 9 1,627,143,373 1,576,987,377 Derivative financial instruments 6,7,33 32,347,078 18,610,234 Firm commitment liabilities 673,269 750,371 Withholdings 164,181,539 128,596,145 Accrued expenses 7 104,811,562 84,323,141 Other current liabilities 7,19 117,213,610 148,926,123 Current tax liabilities 27 28,200,032 11,607,032 2,949,341,947 3,351,176,628 Non-current liabilities Derivative financial instruments 6,7,33 9,627,383 16,323,882 Firm commitment liabilities 709 204 Net defined benefit liabilities 18 48,760,934 49,973,727 Other non-current liabilities 7,19 209,081,031 153,800,278 Deferred tax liabilities 27 25,565,011 23,468,771 293,035,068 243,566,862 Total liabilities 3,242,377,015 3,594,743,490

Equity Share capital 20 980,000,000 980,000,000 Retained earnings 21 526,287,579 233,681,870 Other components of equity 22 (183,440,820) (158,701,125) Equity attributable to owners of the Parent Company 1,322,846,759 1,054,980,745 Non-controlling interest (19,975,938) (21,211,084) Total equity 1,302,870,821 1,033,769,661 Total liabilities and equity ￦ 4,545,247,836 ￦ 4,628,513,151

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

6 Samsung Engineering Co.,Ltd. and Subsidiaries Consolidated Statements of Profit or Loss Years Ended December 31, 2019 and 2018

(in thousands of Korean won, except per share amounts) Notes 2019 2018

Sales 23 ￦ 6,367,980,187 ￦ 5,479,801,109

Cost of sales 23,24 5,605,758,715 4,931,853,067

Gross profit 762,221,472 547,948,042

Selling, general and administrative expenses 24,25 376,745,677 341,867,251

Operating profit 385,475,795 206,080,791

Other income 26 285,869,375 178,041,611 Other expenses 26 298,269,787 180,224,890 Share of profit of associates 12 32,166,858 4,956,052 Share of loss of associates 12 46 4,849 Finance income Interest income 10,394,914 11,332,817 Gain on foreign currency transactions 25,714,416 49,282,329 Gain on foreign currency translation 22,817,004 238,700 58,926,334 60,853,846 Finance costs Interest expenses 15,824,803 41,761,082 Loss on foreign currency transactions 25,402,570 57,223,899 Loss on foreign currency translation 22,403,091 540,922 63,630,464 99,525,903

Profit before income tax 400,538,065 170,176,658 Income tax expense 27 104,957,420 99,980,222

Profit for the year 295,580,645 70,196,436

Profit is attributable to: Owners of the Parent Company ￦ 292,648,416 ￦ 68,684,743 Non-controlling interests 2,932,229 1,511,693

Earnings per share attributable to owners of the Parent Company Basic earnings per share 28 ￦ 1,493 ￦ 350

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

7 Samsung Engineering Co.,Ltd. and Subsidiaries Consolidated Statements of Comprehensive Income Years Ended December 31, 2019 and 2018

(in thousands of Korean won) Notes 2019 2018

Profit for the year ￦ 295,580,645 ￦ 70,196,435 Other comprehensive income (loss) Items that will not be reclassified to profit or loss Remeasurements of net defined benefit liability 18 (33,260,836) (21,479,288) Valuation of financial assets measured at fair value 7,10 63,957 1,971,446 through other comprehensive income Income tax effect of other comprehensive income 27 7,921,863 4,770,900

Items to be subsequently reclassified to profit or loss: Valuation of derivative financial instruments 7 6,762,126 (32,202,093) Foreign currency translation differences (1,097,857) (2,705,080) Share of other comprehensive income of associates 12 (7,198,116) 6,688,829 Income tax effect of other comprehensive income 27 351,295 7,792,907 Other comprehensive income (loss) for the year, net of tax (26,457,568) (35,162,379)

Total comprehensive income for the year ￦ 269,123,077 ￦ 35,034,056

Total comprehensive income for the year is attributable to: Owners of the Parent Company ￦ 266,343,345 ￦ 34,723,373 Non-controlling interest 2,779,732 310,683

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

8 Samsung Engineering Co.,Ltd. and Subsidiaries Consolidated Statements of Changes in Equity Years Ended December 31, 2019 and 2018

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

Balance at January 1, 2018 ￦ 980,000,000 ￦ 169,590,585 ￦ (123,404,037) ￦ (21,521,767) ￦ 1,004,664,781 Changes in accounting policy - (4,593,458) (1,335,718) - (5,929,176) Restated total equity at the beginning of the financial year 980,000,000 164,997,127 (124,739,755) (21,521,767) 998,735,605

Total comprehensive income Profit for the year - 68,684,743 - 1,511,693 70,196,436 Gain on valuation of financial assets at fair value 10 - - 1,496,359 - 1,496,359 through other comprehensive income Loss on valuation of derivative 33 - - (24,409,187) - (24,409,187) Share of other comprehensive income of associates 12 - - 6,688,829 - 6,688,829 Loss on translation of foreign operations - - (1,504,071) (1,201,010) (2,705,081) Remeasurements of net defined benefit liabilities 18 - - (16,233,301) - (16,233,301) Total comprehensive income - 68,684,743 (33,961,371) 310,683 35,034,055 Balance at December 31, 2018 ￦ 980,000,000 ￦ 233,681,870 ￦ (158,701,126) ￦ (21,211,084) ￦ 1,033,769,660

9 Samsung Engineering Co.,Ltd. and Subsidiaries Consolidated Statements of Changes in Equity Years Ended December 31, 2019 and 2018

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

Balance at January 1, 2019 ￦ 980,000,000 ￦ 233,681,870 ￦ (158,701,126) ￦ (21,211,084) ￦ 1,033,769,660 Total comprehensive income Profit for the year - 292,648,416 - 2,932,229 295,580,645 Gain on valuation of financial assets at fair value 10 - (42,707) 91,187 - 48,480 through other comprehensive income Gain on valuation of derivative 33 - - 5,125,692 - 5,125,692 Share of other comprehensive income of associates 12 - - (5,563,986) - (5,563,986) Gain on translation of foreign operations - - (591,740) (152,518) (744,258) Remeasurements of net defined benefit liabilities 18 - - (25,323,517) 21 (25,323,496) Total comprehensive income - 292,605,709 (26,262,364) 2,779,732 269,123,077

Transactions with owners Transactions with owners of subsidiaries - - 1,522,670 (1,544,586) (21,916) Total transactions with owners - - 1,522,670 (1,544,586) (21,916) Balance at December 31, 2019 ￦ 980,000,000 ￦ 526,287,579 ￦ (183,440,820) ￦ (19,975,938) ￦ 1,302,870,821

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

10 Samsung Engineering Co.,Ltd. and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31, 2019 and 2018

(in thousands of Korean won) Notes 2019 2018

Cash flows from operating activities Profit for the year ￦ 295,580,645 ￦ 70,196,436 Adjustments 30 146,260,416 247,567,753 Changes in operating assets and liabilities 30 398,243,216 233,780,847 Interest received 8,572,355 10,362,700 Interest paid (16,574,362) (44,991,264) Dividends received 3,025,283 2,502,583 Income tax paid (50,983,304) (73,170,671) Net cash inflow from operating activities 784,124,249 446,248,384

Cash flows from investing activities Proceeds from disposal of property, plant and equipment 3,359,522 12,413,852 Proceeds from disposal of intangible assets 336,369 - Net decrease(increase) in financial assets (98,593,545) 21,561,127 Proceeds of financial assets at amortized cost 148,605 74,085 Decrease in short-term loan receivables 8,178,702 13,492,965 Increase in short-term loan receivables (16,285,271) (7,000,000) Acquisition of investments in associates (8,518,958) (15,777) Disposal of financial assets at fair value 595 - through other comprehensive income Decrease in other non-current assets 25,836 - Increase in other non-current assets (5,910,407) (80,826) Acquisition of financial assets at amortized cost (365,880) (156,780) Acquisition of property, plant and equipment (19,602,514) (14,606,916) Acquisition of intangible assets (11,042,030) (9,321,965) Decrease in guarantee deposits provided 11,915,977 10,828,496 Increase in guarantee deposits provided (10,857,898) (6,494,303) Net cash inflow (outflow) from investing activities (147,210,897) 20,693,958

Cash flows from financing activities Repayment of current portion of bonds (80,000,000) (121,000,000) Net increase(decrease) from short-term borrowings (298,594,986) (456,142,124) Decrease in lease liabilities (6,874,117) - Increase in leasehold deposits - 4,570,902 Decrease in leasehold deposits (192,982) - Repayment of current portion of long-term borrowings (39,000,000) (127,000,000) Repayment of long-term borrowings - (149,000,000) Proceeds from derivative related to long-term borrowings 2,424,000 (601,550) Additional acquisition of non-controlling interests (21,917) - Net cash outflow from financing activities (422,260,002) (849,172,772)

Effects of exchange rate changes on cash and cash equivalents 5,498,383 6,470,382 Net increase (decrease) in cash and cash equivalents 220,151,733 (375,760,048) Cash and cash equivalents at the beginning of the year 369,360,461 745,120,509 Cash and cash equivalents at the end of the year ￦ 589,512,194 ￦ 369,360,461

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

11 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

1. General information

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

SECL was established on January 20, 1970, under the Commercial Law of the Republic of Korea to engage in the engineering services for plant and other construction. The Company listed its shares on the Korea Stock Exchange on December 24, 1996. Its registered office is in Seoul, Korea. As at December 31, 2019, its share capital is ￦ 980,000,000 thousand, and the largest shareholder is Samsung SDI Co., Ltd., which has 11.69 % ownership.

As at December 31, 2019, its major shareholders are as follows:

Name of shareholders Number of shares Ownership (%)

Samsung SDI Co., Ltd. 22,918,426 11.69 National Pension Service 19,635,812 10.02 Samsung C&T 13,668,989 6.97 BlackRock Fund Advisors 5,293,553 2.70 Vanguard 4,499,406 2.30

12 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

Consolidated subsidiaries

As at December 31, 2019, details on subsidiaries are stated below:

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

Samsung Saudi Arabia 1,513,800 200 1,514,000 100 December 31 Saudi Arabia Co., Ltd. Samsung EPC Co., Ltd. - 37,500 37,500 75.00 December 31 Saudi Arabia Samsung Engineering Construction - - - 100 December 31 China (Shanghai) Co., Ltd. Samsung Ingenieria 99,900 - 99,900 99.90 December 31 Mexico Manzanillo S.A. De C.V. Samsung Engineering Trinidad and - - - 100 December 31 Trinidad Co., Ltd. Tobago Samsung Engineering 15,749,990 - 15,749,990 99.99 March 31 India India Private Limited Samsung Engineering 121,500,000 - 121,500,000 100 December 31 USA America Inc. SEA Construction, LLC - - - 100 December 31 USA SEA Louisiana - 10,000 10,000 100 December 31 USA Construction L.L.C Grupo Samsung Ingenieria 335,131 - 335,131 99.99 December 31 Mexico Mexico S.A. De C.V. Samsung Engineering - - - 100 December 31 Kazakhstan Kazakhstan LLP Samsung Engineering 750,000 - 750,000 100 December 31 Malaysia (Malaysia) SDN. BHD Samsung Ingenieria Mexico Construction Y 49,950 - 49,950 99.90 December 31 Mexico Operacion S.A. De C.V. Samsung Engineering 63,437 - 63,437 49.99 December 31 Thailand (Thailand) Co., Ltd. (*2) Samsung Ingenieria 9,999 - 9,999 99.99 December 31 Mexico Energia S.A. De C.V. Muharraq Wastewater 399 1 400 100 December 31 Bahrain Services Company W.L.L. Samsung Engineering 1,000,498 - 1,000,498 99.99 March 31 Bolivia Bolivia S.A Samsung Engineering - - - 100 December 31 Vietnam Vietnam Co., Ltd. Samsung Ingenieria DUBA 9,999 - 9,999 99.99 December 31 Mexico S.A. De C.V. Samsung Engineering Construction Xi' an Co., - - - 100 December 31 China Ltd. Samsung Engineering - - - 100 December 31 Hungary

13 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

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

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

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

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

14 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

Summarized financial information of major subsidiaries as at December 31, 2019, is as follows:

(In thousands of Korean won) 2019

Assets Liabilities Equity Sales Profit for the year

Samsung Engineering Construction

Xi' an Co., Ltd. \ 234,986,334 \ 183,634,565 \ 51,351,769 \ 379,129,172 \ 32,592,807 Samsung Saudi Arabia Co., Ltd. 200,004,898 250,525,294 (50,520,396) 208,434,696 16,879,045 SEA Louisiana Construction, L.L.C. 149,188,540 539,753 148,648,787 23,947,864 17,358,311 Samsung Engineering

Construction(Shanghai) Co., Ltd. 147,417,961 55,992,922 91,425,039 351,479,598 35,160,671 Samsung Engineering (Thailand)

Co., Ltd. 105,692,412 97,199,398 8,493,014 304,344,304 5,488,808 Samsung Engineering (Malaysia)

SDN. BHD. 90,443,137 4,948,875 85,494,262 57,658,462 8,313,862 Samsung Engineering Hungary

Ltd. 77,702,269 28,797,292 48,904,977 201,922,657 22,208,182

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

Summarized financial information of major subsidiaries as at December 31, 2018, is as follows:

(In thousands of Korean won) 2018 Profit (loss) for Assets Liabilities Equity Sales the year

Samsung Saudi Arabia Co., Ltd. \ 211,781,123 \ 343,361,262 \ (131,580,139) \ 29,183,816 \ (4,182,389) SEA Louisiana Construction, L.L.C. 148,465,867 21,564,276 126,901,591 61,528,855 32,009,013 Samsung Engineering

Construction(Shanghai) Co., Ltd. 105,804,699 49,970,871 55,833,828 188,534,945 16,621,585 Samsung Engineering (Malaysia)

SDN., BHD. 100,734,304 27,042,263 73,692,041 250,463,211 59,109,358 Samsung Engineering Construction

Xi' an Co., Ltd. 82,774,426 63,814,097 18,960,329 311,072,578 17,630,720 Samsung Engineering (Thailand)

Co., Ltd. 74,477,326 71,950,555 2,526,771 146,477,816 (1,892,206) Samsung Engineering Hungary

Ltd. 47,418,010 16,021,025 31,396,985 98,229,676 14,737,045

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

15 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

2. Summary of significant accounting policies

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

2.1 Basis of Preparation

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

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

The consolidated financial statements of the Group have been prepared in accordance with Korean IFRS. These are the standards, subsequent amendments and related interpretations issued by the International Accounting Standards Board (IASB) that have been adopted by the Republic of Korea.

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

2.2 Changes in Accounting Policy and Disclosures

(1) New and amended standards adopted by the Group

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

(a) Enactment of Korean IFRS 1116 Leases

Korean IFRS 1116 Leases replaces Korean IFRS 1017 Leases. Under the new standard, with implementation of a single lease model, lessee is required to recognize assets and liabilities for all lease which lease term is over 12 months and underlying assets are not low value assets. A lessee is required to recognize a right-of-use asset and a lease liability representing its obligation to make lease payments.

16 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

With implementation of Korean IFRS 1116 Lease, the Group has changed accounting policy. The Group has adopted Korean IFRS 1116 retrospectively, as permitted under the specific transitional provisions in the standard, and recognized the cumulative impact of initially applying the standard as at January 1, 2019, the date of initial application. The Group has not restated comparatives for the 2018 reporting period. The impact of the adoption of the leasing standard and the new accounting policies are disclosed in Note 34.

(b) Amendment to Korean IFRS 1109 Financial Instruments

The narrow-scope amendments made to Korean IFRS 1109 Financial Instruments enable entities to measure certain prepayable financial assets with negative compensation at amortized cost. When a modification of a financial liability measured at amortized cost that does not result in the derecognition, a modification gain or loss shall be recognized in profit or loss. The amendment does not have a significant impact on the consolidated financial statements.

(c) Amendments to Korean IFRS 1019 Employee Benefits

The amendments require that an entity shall calculate current service cost and net interest for the remainder of the reporting period after a plan amendment, curtailment or settlement based on updated actuarial assumptions from the date of the change. The amendments also require that a reduction in a surplus must be recognized in profit or loss even if that surplus was not previously recognized because of the impact of the asset ceiling. The amendments do not have a significant impact on the consolidated financial statements.

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

The amendments clarify that an entity shall apply Korean IFRS 1109 to financial instruments in an associate or joint venture to which the equity method is not applied. These include long-term interests that, in substance, form part of the entity’s net investment in an associate or joint venture. The amendments do not have a significant impact on the consolidated financial statements.

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

The interpretation explains how to recognize and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment, and includes guidance on how to determine whether each uncertain tax treatment is considered separately or together. It also presents examples of circumstances where a judgement or estimate is required to be reassessed. The enactment does not have a significant impact on the consolidated financial statements.

17 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

 Amendments to Korean IFRS 1103 Business Combination

The amendments clarify that when a party to a joint arrangement obtains control of a business that is a joint operation, and had rights to the assets and obligations for the liabilities relating to that joint operation immediately before the acquisition date, the transaction is a business combination achieved in stages. In such cases, the acquirer shall remeasure its entire previously held interest in the joint operation. The amendments do not have a significant impact on the consolidated financial statements.

 Amendments to Korean IFRS 1111 Joint Agreements

The amendments clarify that when a party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business. In such cases, previously held interests in the joint operation are not remeasured. The amendments do not have a significant impact on the consolidated financial statements.

 Amendments to Paragraph 57A of Korean IFRS 1012 Income Tax

The amendment is applied to all the income tax consequences of dividends and requires an entity to recognize the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events. The amendments do not have a significant impact on the consolidated financial statements.

 Korean IFRS 1023 Borrowing Costs

The amendments clarify that if a specific borrowing remains outstanding after the related qualifying asset is ready for its intended use (or sale), it becomes part of general borrowings. The amendment does not have a significant impact on the consolidated financial statements.

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

The following new accounting standards and interpretations have been published that are not mandatory for December 31, 2019 reporting periods and have not been early adopted by the Group.

18 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(a) Amendments to Korean IFRS 1001 Presentation of Financial Statements and Korean IFRS 1008 Accounting Policies, Changes in Accounting Estimates and Errors – Definition of Material

The amendments clarify the explanation of the definition of material and amended Korean IFRS 1001 and Korean IFRS 1008 in accordance with the clarified definitions. Materiality is assessed by reference to omission or misstatement of material information as well as effects of immaterial information, and to the nature of the users when determining the information to be disclosed by the Group. These amendments should be applied for annual periods beginning on or after January 1, 2020, and earlier application of permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

(b) Amendments to Korean IFRS 1103 Business Combination – Definition of a Business

To consider the integration of the required activities and assets as a business, the amended definition of a business requires an acquisition to include an input and a substantive process that together significantly contribute to the ability to create outputs and excludes economic benefits from the lower costs. An entity can apply a concentration test, an optional test, where substantially all of the fair value of gross assets acquired is concentrated in a single asset or a group of similar assets, the assets acquired would not represent a business. These amendments should be applied for annual periods beginning on or after January 1, 2020, and earlier application of permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

2.3 Consolidation

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

(a) Subsidiaries

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

The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred is measured at the fair values of the assets transferred, and identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. All other non-controlling interests are measured at fair values, unless otherwise required by other standards. Acquisition-related costs are expensed as incurred.

19 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

Intercompany transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(b) Associates

Associates are entities over which the Group has significant influence but not control or joint control. Investments in associates are accounted for using the equity method of accounting, after initially being recognized at cost. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. If there is an objective evidence of impairment for the investment in the associate, the Group recognizes the difference between the recoverable amount of the associate and its book amount as impairment loss.

(c) Joint Arrangements

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

2.4 Foreign Currency Translation

(a) Functional and presentation currency

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

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in profit or loss.

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

20 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

2.5 Financial Assets

(a) Classification

The Group classifies its financial assets in the following measurement categories:

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

 those to be measured at amortized cost.

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

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

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

(b) Measurement

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

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

A. Debt instruments

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

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

21 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

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

B. Equity instruments

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

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

(c) Impairment

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

22 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(d) Recognition and Derecognition

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

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

(e) Offsetting of financial instruments

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

2.6 Derivative Instruments

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

2.7 Property, Plant and Equipment

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

23 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

Depreciation of all property, plant and equipment, except for land, is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives as follows:

Useful lives

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

2.8 Borrowing Costs

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

2.9 Government Grants

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

24 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

2.10 Intangible Assets

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

Software which meet the definition of an intangible asset, are amortized using the straight-line method over 4 years which is their estimated useful lives when the asset is available for use. Other intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount exceeds its recoverable amount.

2.11 Investment Property

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

2.12 Impairment of Non-financial Assets

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

2.13 Financial Guarantee Contracts

Financial guarantee contracts are recognized as a financial liability at the time the guarantee is issued. Financial guarantee contracts are recognized as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value, subsequently at the higher of following and recognized in the statement of financial position within ‘other financial liabilities’.

 the amount determined in accordance with the expected credit loss model under Korean IFRS 1109 Financial Instruments, and

 the amount initially recognized less, where appropriate, the cumulative amount of income recognized in accordance with Korean IFRS 1115 Revenue from Contracts with Customers.

25 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

2.14 Provisions

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period, and the increase in the provision due to the passage of time is recognized as interest expense.

2.15 Current and Deferred Tax

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

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

Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. The Group recognizes current income tax on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting profit nor taxable profit or loss.

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

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

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

26 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

2.16 Employee Benefits

(a) Post-employment benefits

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

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

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

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

(b) Share-based payments

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

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

27 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

2.17 Revenue Recognition

(a) General Revenue Recognition

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

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

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable, and the contract costs are recognized as expenses when incurred.

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

(b) Combination of Contracts

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

(c) Identifying performance obligations

The major business of the Group is engineering which includes plant construction. In accordance with the Korean IFRS 1115, in EPC business, design, procurement and construction are closely related and not considered separate performance obligation. Therefore, the Group identifies the construction contract as one performance obligation.

(d) Performance obligation satisfied over time.

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

28 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(e) Measurement of progress rate using input method

The EPC business of the Group enters into plant construction contracts which include procurement and installation of special equipment, and performs construction in the long term of over two years. The supply of the special equipment and the provision of construction services are one performance obligation that are not distinguishable. In accordance with the Korean IFRS 1115, it is faithful representation of the Group’s performance that to recognize revenue at the same amount of the costs of goods used to satisfy a performance obligation if all of the following conditions would be met; (a) goods are not distinguishable at contract inception; (b) it is expected that customers will have significant control over the goods before they are provided with services related to the goods; (c) The cost of goods transferred is significant compared to the total expected costs to completely satisfy the performance obligation; and (d) the Group procures the good from a third party and is not significantly involved in designing and manufacturing the goods. However, the Group’s performance obligation does not meet the above conditions, the costs of special equipment are included in the progress calculation.

(f) Variable Consideration

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

(g) Incremental costs of obtaining a contract

The incremental costs of obtaining a contract are those costs that the Group incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. It shall be recognized as an expense unless those costs are explicitly chargeable to the customer. The company considers the incremental costs of obtaining a contract by occurrence item. The incremental costs of obtaining a contract that are recognized as an asset are amortized as contract costs according to the progress.

(h) Costs to fulfill a contract.

Costs to fulfill a contract are the costs incurred in fulfilling a contract with a customer. Those costs shall be recognized as an asset and are amortized as contract costs according to the progress if all of the following conditions would be met; (a) the costs relate directly to a contract or to an anticipated contract that the entity can specifically identify (for example, costs relating to services to be provided under renewal of an existing contract or costs of designing an asset to be transferred under a specific contract that has not yet been approved); (b) the costs generate or enhance resources of the entity that will be used in satisfying (or in continuing to satisfy) performance obligations in the future; and (c) the costs are expected to be recovered.

29 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(i) Contract asset and contract liability

A contract asset is the Group's right to consideration in exchange for goods or services that the Group has transferred to a customer, and a contract liability is the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. The contract assets and contract liabilities that incurred from one contract are offset and the net amount reported in the statement of financial position. The Group shall present any unconditional rights to consideration separately as a receivable.

2.18 Leases

As explained in Note 2.2 above, the Group has changed its accounting policy for leases.

As at December 31, 2018, leases in which a significant portion of the risks and rewards of ownership were not transferred to the Group as lessee were classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

Lease income from operating leases where the Group is a lessor is recognized in income on a straight-line basis over the lease term. Initial direct costs incurred in obtaining an operating lease are added to the carrying amount of the underlying asset and recognized as expense over the lease term on the same basis as lease income. The respective leased assets are included in the statement of financial position based on their nature. The Group did not need to make any adjustments to the accounting for assets held as lessor as a result of adopting the new leasing standard.

The Group leases various offices, cars, and other equipment. Lease contracts are typically made for fixed periods of less than 1 year to average 1.7 years, but may have extension options as described below.

Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. However, for leases of real estate for which the Group is lessee, the Group applies the practical expedient which has elected not to separate lease and non-lease components and instead accounts for these as a single lease component.

Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.

Until the 2018 financial year, leases of property, plant and equipment were classified as either finance or operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

From January 1, 2019, leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

30 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

 Fixed payments (including in-substance fixed payments), less any lease incentives receivable

 Variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date

 Amounts expected to be payable by the Group (the lessee) under residual value guarantees

 The exercise price of a purchase option if the Group (the lessee) is reasonably certain to exercise that option, and

 Payments of penalties for terminating the lease, if the lease term reflects the Group (the lessee) exercising that option

Lease liability measurement also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease.

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

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

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

Right-of-use assets are measured at cost comprising the following:

 the amount of the initial measurement of lease liability

 any lease payments made at or before the commencement date less any lease incentives received

 any initial direct costs, and

 restoration costs

31 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life.

Payments associated with short-term leases of equipment and vehicles and leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office furniture.

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

2.19 Approval of financial statement

The financial statements 2019 were approved by the Board of Directors on January 31, 2020, and are subject to change with approval of shareholders at their Annual General Meeting.

3. Critical Accounting Estimates and Assumptions

The Group makes estimates and assumptions concerning the future. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. These estimates and assumptions may differ from the related actual results.

(a) Revenue recognition

- Uncertainty in estimating total contract revenue and cost

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

32 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

The measurement of the construction revenue is affected by the uncertainty of the occurrence of future events. The damage claims for the delay are estimated based on historical experience in case the completion date is expected to be delayed due to the Group’s fault. As at December 31, 2019, the maximum amount of damage claims from the delay as the Group was not able to meet the contracted completion date is expected to be ￦ 35,721 million. Of this amount, the best estimate of damage claims from the delay as the Group is likely to bear due to the Group's fault as at December 31, 2019 is ￦ 35,721 million, which was deducted from the contract revenue. The amount will be continuously revalued until the completion date. The Group is constantly putting an effort to minimize damage claims for the delay by making a claim to the client for the extension of the construction completion deadline and by proofing that the Group has no failure to comply with the construction completion deadline.

(b) Income tax

The Group’s taxable income generated from these operations are subject to income taxes based on tax laws and interpretations of tax authorities in numerous jurisdictions. There are many transactions and calculations for which the ultimate tax determination is uncertain.

If certain portion of the taxable income is not used for investments or increase in wages in accordance with the Tax System for Recirculation of Corporate Income, the Group is liable to pay additional income tax calculated based on the tax laws. Accordingly, the measurement of current and deferred income tax is affected by the tax effects from the new tax system. As the Group’s income tax is dependent on the investments, increase in wages, there is an uncertainty measuring the final tax effects.

Meanwhile, the Group recognized deferred tax assets for unused tax losses and tax credit carried forward to the extent that determined to be realizable in the future. As at December 31, 2019, the Group determined that the unused tax credit carried forward was not realizable, so didn’t recognize deferred tax assets of ￦ 142,055 million.

(c) Fair value of financial instruments

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

(d) Net defined benefit liabilities

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

33 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

4. Cash and Cash Equivalents

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

(In thousands of Korean won) 2019 2018

Cash \ 137,377 \ 396,381 Ordinary deposit and current deposits 344,242,469 254,759,263 Time Deposits 245,132,348 114,204,817 \ 589,512,194 \ 369,360,461

5. Financial Instruments Subject to Withdrawal Restrictions

Short- and long-term financial instruments subject to withdrawal restrictions as at December 31, 2019 and 2018, consist of the following:

(In thousands of Korean won) 2019 2018

Short-term financial instruments Government grant \ 1,314,150 \ 1,313,042 Guarantees of indebtedness 29,298,457 11,173,134 Long-term financial instruments(*1) Cash and bank deposits 15,500 15,500 Pledged assets 210,000 210,000 Guarantee deposits(*2) Customs guarantee deposits 2,081,809 327,823 \ 32,919,916 \ 13,039,499

(*1) Long-term financial instruments are included in the consolidated statements of financial position as ‘other non-current assets’. (*2) Guarantee deposits are included in the consolidated statements of financial position as ‘guarantees deposits provided’.

34 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

6. Fair Values

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

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

(2) Financial Instruments Measured at Cost

Details of financial instruments that are measured at cost because their fair value cannot be reliably assessed as at December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Non-listed equities Financial assets measured \ and others 26,951 \ 26,951 at fair value through profit Equity investments or loss and others 20,000 20,000 Financial assets measured at fair value through other Non-listed equities comprehensive income 237,387 211,930 \ 284,338 \ 258,881

(3) Fair Value Hierarchy

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

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

Fair value hierarchy classifications of the financial instruments that are measured at fair value or whose fair values are disclosed as at December 31, 2019 and 2018, are as follows:

35 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(In thousands of Korean won) 2019

Level 1 Level 2 Level 3 Total

Assets Financial assets measured at fair value through profit or loss \ - \ - \ 6,942,527 \ 6,942,527 Financial assets measured at fair value through other comprehensive income 3,366,064 2,200,000 25,392,230 30,958,294 Derivative financial instruments - 9,745,704 - 9,745,704 Liabilities Derivative financial instruments - 41,974,461 - 41,974,461

(In thousands of Korean won) 2018

Level 1 Level 2 Level 3 Total

Assets Financial assets measured at fair value through profit or loss \ - \ - \ 6,878,196 \ 6,878,196 Financial assets measured at fair value through other comprehensive income 2,239,727 1,350,000 27,305,204 30,894,931 Derivative financial instruments - 2,760,274 - 2,760,274 Liabilities Derivative financial instruments - 34,934,115 - 34,934,115

There have been no significant changes in Level 1 and Level 2 for the year ended December 31, 2019.

(4) Changes in the Financial Instruments on Level 3

The changes in the financial instruments of Level 3 for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) Financial assets measured at Financial assets measured at fair value through other fair value through profit or loss comprehensive income 2019 2018 2019 2018

Balance as at January 1 \ 6,878,196 \ 26,878,794 \ 27,305,204 \ 24,857,308 Profit or loss recognized as profit or loss 64,331 (21,166,555) - - Profit or loss recognized as other comprehensive income - - (1,912,974) 2,447,896 Changes due to exchange rate fluctuation and etc. - 1,165,957 - - Balance as at December 31 \ 6,942,527 \ 6,878,196 \ 25,392,230 \ 27,305,204

36 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

(5) The Group’s policy is to recognize transfers between levels of the fair value at the date of the event or change in circumstances that caused the transfer.

(6) Valuation Technique and the Inputs

Valuation techniques and inputs used in the recurring and non-recurring fair value measurements and disclosed fair values categorized within Level 2 and Level 3 of the fair value hierarchy as at December 31, 2019, are as follows:

(In thousands of Korean won) 2019 Range of inputs Valuation (weighted Fair value Level techniques Inputs average)

Financial assets measured at fair value through profit or loss Construction Net asset value Growth rate, discount rate Guarantee and 6,942,527 3 - approach and others others Financial assets measured at fair value through other comprehensive income Discounted cash 9.83~11.83 Yong-in Clean Water 9,409,819 3 flow of Cost of capital and others (10.83)% Co., Ltd. shareholders Discounted cash 12.49~14.49 Samsung Veolia 11,937,073 3 flow of Cost of capital and others (13.49)% shareholders Dongbu Discounted cash 12.48~14.48 Environment Co., 2,984,208 3 flow of Cost of capital and others (13.48)% Ltd. shareholders Discounted cash Weighted average capital 7.37~9.37 Asan Smart Water 1,061,130 3 flow cost and others (8.37)% Shinwon C.C. 2,200,000 2 Market approach Quoted price - Derivative financial assets and liabilities Foreign currency Present value Foreign currency forward (32,228,757) 2 - forward technique exchange rate

37 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

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

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

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

The results of the sensitivity analysis for the effect on other comprehensive income from changes in inputs for the aforementioned equity securities for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018 Favorable Unfavorable Favorable Unfavorable changes changes changes changes

Financial assets: Financial assets measured at fair value through other comprehensive income(*1) \ 1,464,076 \ (1,316,387) \ 1,025,377 \ (927,554)

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

(9) Reclassification of financial assets

There have been no reclassified financial assets due to changes in purpose or use for the year ended December 31, 2019.

38 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

7. Financial Instruments by Category

(1) Carrying amounts of financial assets and liabilities by category as at December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Financial assets at fair value through profit or loss \ 6,989,478 \ 6,925,147 Financial assets measured at fair value through

other comprehensive income(*1) 418,347,061 106,836,213 Financial assets at amortized cost Cash and cash equivalents 589,512,194 369,360,461 Short-term financial instruments 150,447,557 51,245,796 Trade receivables 827,608,167 1,307,382,977 Due from customers for contract work 325,844,674 595,208,836 Other receivables 45,251,992 110,790,274 Debt Security 836,340 619,065 Others(*2) 199,574,593 192,256,364 Derivative instruments held for trading 9,026,088 803,696 held for hedging 719,616 1,956,579 \ 2,574,157,760 \ 2,743,385,408

(*1) The Group holds certain receivables for the purpose of receipt and sale, and the fair value of the receivables is their carrying amount. (*2) Short-term loan receivables and guarantee deposits provided are included and financial assets consisted in other current and non-current assets are included.

(In thousands of Korean won) 2019 2018

Financial liabilities measured at amortized cost Trade payables \ 515,715,496 \ 502,477,317 Other payables 210,876,933 321,354,441 Borrowings and other financial liabilities 148,179,055 477,544,447 Bonds - 80,000,000 Guarantee deposits received(*1) 179,449,205 162,986,325 Accrued expenses 104,811,562 84,323,141 Derivative instruments held for trading 29,995,673 12,791,683 held for hedging 11,978,788 22,142,432 Lease liabilities 38,072,611 - \ 1,239,079,323 \ 1,663,619,786

39 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

(2) Among equity investments with no price disclosed in quoted market, the fair values of equity financial instruments are same as the carrying amounts, except those the fair values cannot be reliably measured.

(3) Net gains or losses on each category of financial instruments for the years ended December 31, 2019 and 2018, are as follows:

(in thousands of Korean won) 2019 2018

Financial assets measured at fair value through other comprehensive income

Loss on disposal of receivables ￦ (10,050,529) ￦ (9,063,829) Gain on valuation (other comprehensive income) (*1) 63,958 1,971,446 Dividend income 2,932,274 2,369,713 Financial assets measured at fair value through profit or loss Gain (loss) on valuation (net income) 64,331 (21,166,555) Dividend income 93,009 132,870 Financial assets at amortized cost Interest income 10,394,914 11,332,817 Reversal of provision for impairment on receivables(Impairment loss on receivables) 362,462 (2,913,562) Impairment loss on other receivables (195,041) (121,461) Reversal of provision for impairment on other receivables 1,570,270 56,138 Gain on foreign currency transaction 6,006,214 3,077,165 Gain (loss) on foreign currency translation (9,871,079) 14,408,369 Derivative instruments held for trading Gain (loss) on valuation of derivative (1,194,501) 48,549 Loss on transaction of derivative (13,433,495) - Derivative instruments held for hedging Loss on valuation of derivative (10,694,555) (4,702,175) Gain (loss) on transaction of derivative (23,644,968) 249,392 Gain (loss) on valuation (other comprehensive income) (*1) 6,762,126 (32,202,093)

Financial liabilities measured at amortized cost Interest expenses (15,824,803) (41,761,082) Loss on foreign currency transaction (2,507,961) (2,647,401) Loss on foreign currency translation (2,367,710) (13,413,893)

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

40 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

8. Transfer of Financial Assets

(1) Partially Transferred Financial Assets

Under factoring arrangement, the Group has sold trade receivables at a discount to KEB Hana Bank for the year ended December 31, 2018. This transaction was accounted for as a collateralized borrowings (Note 17), because the Group is obligated to pay the amount to the bank if the trade receivables are not recovered at maturity. The Group determined that it is appropriate to measure at amortized cost as the business model of these trade receivables is still for the purpose of receipt.

(In thousands of Korean won) Factored Trade Receivables 2019 2018

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

(2) Fully Transferred Financial Assets

Trade receivables that were transferred to INDUSTRIAL BANK OF KOREA and three other financial institutions (2018: Samsung Card and four other financial institutions) and derecognized from the consolidated financial statements amount to ￦ 2,109,088 million for the year ended December 31, 2019 (2018: ￦ 1,937,280 million). In relation to the transactions, loss on disposal of ￦ 10,051 million (2018: ￦ 9,064 million) was recognized at the transfer date.

9. Contract assets and liabilities

(1) The following are the gross contract assets and liabilities recognized by the Group.

(In thousands of Korean won) 2019 2018

Contract assets - Due from customers for contract work \ 325,844,674 \ 595,208,836 Contract liability – Due to customers for contract work 1,627,143,373 1,576,987,377

As at December 31, 2019, the amount of cost to fulfil a contract recognized by the Group as assets is \ 58,917 million (January 1, 2019: \ 120,173 million). In relation to the construction contract, the Group has recognized cost to fulfil a contract when those costs relate directly to a contract or to an anticipated contract, generate or enhance resources of the Company that will be used in satisfying performance obligations in the future, and are expected to be recovered.

41 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(2) Material Changes in Contract Assets and Liabilities

For the year ended December 31, 2019, the contract assets and liabilities varied according to the recognition of revenue from construction contracts (refer to Note 23).

(3) The amount recognized as revenue for the fiscal year 2019 in relation to the contract liability for the construction contract that was carried forward from the previous period is \ 1,346,144 million.

(4) The trade receivables and other receivables as at December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019

Long-term

Due from loan Short term Long term

Trade customers for Other Advanced Short-term loan receivables Guarantee Guarantee receivables contract work receivables payments receivables (*1) Deposit (*1) Deposit

Receivables not past due \ 1,218,302,602 \ 325,844,674 \ 45,783,462 \ 251,127,973 \ 33,330,832 \ 18,420,182 \ 32,865,836 \ 116,099,849

Impaired receivables 10,031,481 581,188 169,372 421,359 1,589,154 - - - 1,228,334,083 326,425,862 45,952,834 251,549,332 34,919,986 18,420,182 32,865,836 116,099,849 Provision for impairment

on receivables (13,574,536) (581,188) (700,842) (1,610,318) (1,589,154) - - - Present value of

discount account - - - - (317,928) (2,372,335) - (409,074)

Total \ 1,214,759,547 \ 325,844,674 \ 45,251,992 \ 249,939,014 \ 33,012,904 \ 16,047,847 \ 32,865,836 \ 115,690,775

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

(In thousands of Korean won) 2018

Long-term

Due from loan Short term Long term

Trade customers for Other Advanced Short-term loan receivables Guarantee Guarantee receivables contract work receivables payments receivables (*1) Deposit (*1) Deposit

Receivables not past due \ 1,387,294,338 \ 595,208,836 \ 113,357,183 \ 169,666,338 \ 20,977,627 \ 16,162,129 \ 47,124,981 \ 119,582,214

Impaired receivables 9,687,510 619,170 169,372 421,359 1,534,663 - - - 1,396,981,848 595,828,006 113,526,555 170,087,697 22,512,290 16,162,129 47,124,981 119,582,214 Provision for impairment

on receivables (13,869,519) (619,170) (2,736,281) (1,056,081) (1,534,663) - (10,401,816) - Present value of

discount account - - - - (112,971) (2,399,144) - (310,046)

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

42 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

(5) The aging analysis of trade and other receivables not past due as at December 31, 2019 and 2018, is as follows:

(In thousands of Korean won) 2019 Less than 1 1 year - 2 year More than 2 year over due overdue years overdue Total (*1)

Trade receivables \ 1,119,797,224 \ 27,834,813 \ 70,670,565 \ 1,218,302,602 Due from customers for contract work 167,562,966 58,851,048 99,430,660 325,844,674 Other receivables 32,700,216 1,906,679 11,176,567 45,783,462 Short-term loans(*2) 27,867,948 - 5,462,884 33,330,832 Long-term loans 5,752,185 86,492 12,581,505 18,420,182 Short-term guarantee deposit(*3) 22,577,618 5,760,902 4,527,316 32,865,836 Long-term guarantee deposit 20,823,920 28,218,393 67,057,537 116,099,850

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

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

(*1) The age of trade and other receivables is analyzed based on the date when the receivables occurred. (*2) Includes current portion of long-term loans. (*3) Includes current portion of long-term guarantee deposit.

43 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(6) Movements on the provision for impairment of trade receivables for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 Unused Provision for amounts Balance as at impaired reversed and Balance as at January 1 receivables Write off others December 31

Trade receivables \ 13,869,519 \ (294,983) \ - \ - \ 13,574,536 Due from customers for

contract work 619,170 (37,982) - - 581,188 Other receivables 2,736,281 (2,013,455) - (21,984) 700,842 Advanced payments 1,056,081 554,237 - - 1,610,318 Guarantee deposit 10,401,815 - (10,401,815) - - Short-term loans 1,534,663 54,491 - - 1,589,154 \ 30,217,529 \ (1,737,692) \ (10,401,815) \ (21,984) \ 18,056,038

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

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

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

(7) The Group’s maximum exposure to credit risk as at December 31, 2019, is the carrying amount of trade and other receivables.

44 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

10. Financial Assets Measured at Fair Value

(1) Changes in financial assets measured at fair value for the year ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018 Financial assets Financial assets Financial assets at fair value Financial assets at fair value at fair value through other at fair value through other through profit or comprehensive through profit comprehensive loss income or loss income

Beginning balance \ 6,925,147 \ 31,106,861 \ 26,925,745 \ 29,126,123 Gain (loss) on valuation recognized in profit or loss 64,331 - (21,166,555) - Gain on valuation recognized in other comprehensive income - 63,957 - 1,971,447 Disposal of financial assets at fair value through other comprehensive income - (595) - - Changes due to exchange rate fluctuation and etc. - 25,458 1,165,957 9,291 Ending balance \ 6,989,478 \ 31,195,681 \ 6,925,147 \ 31,106,861

(2) Financial assets measured at fair value as at December 31, 2019 and 2018, are as follows

(In thousands of 2019 2018 Korean won) Acquisition cost Fair value Book amount Book amount

Financial assets measured at fair value through profit or loss Equity instruments Non-listed equities \ 57,283,402 \ 26,951 \ 26,951 \ 26,951 Investments in partnerships 5,026,663 6,962,527 6,962,527 6,898,196 \ 62,310,065 \ 6,989,478 \ 6,989,478 \ 6,925,147 Financial assets measured at fair value through other comprehensive income Equity instruments Listed equities \ 161,830 \ 3,366,064 \ 3,366,064 \ 2,239,727 Non-listed equities 22,081,433 27,829,617 27,829,617 28,867,134 22,243,263 31,195,681 31,195,681 31,106,861 \ 84,553,328 \ 38,185,159 \ 38,185,159 \ 38,032,008

45 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

1) Listed equities

(In thousands of Korean won) 2019 2018 Number of shares Ownership Acquisition owned (%) cost Fair value Book amount Book amount

Financial assets measured at fair value through other comprehensive income iMarket Korea Inc. 323,660 0.9 \ 161,830 \ 3,366,064 \ 3,366,064 \ 2,239,727

2) Non-listed equities

(In thousands of Korean won) 2019 2018 Number of shares Ownership Acquisition owned (%) cost Fair value Book amount Book amount

Financial assets measured at fair value through profit or loss POSCO Plantec 5,206,671 2.88 \ 56,752,714 \ - \ - \ - Entech Enc. Co., Ltd. 51,000 9.61 294,218 26,847 26,847 26,847 Incheon United Football Club 2,000 0.01 5,000 104 104 104 Dongyang Engineering and Construction Corp. 205 0.01 231,470 - - - \ 57,283,402 \ 26,951 \ 26,951 \ 26,951 Financial assets measured at fair value through other comprehensive income Yong-in Clean Water Co., Ltd. 2,006,358 19.90 \ 10,031,789 \ 9,409,819 \ 9,409,819 \ 9,455,965 Samsung Veolia 1,436,298 19.90 7,181,490 11,937,073 11,937,073 13,538,545 Dongbu Environment Co., Ltd. 392,040 19.80 1,960,200 2,984,208 2,984,208 3,315,090 Veolia Samsung Operating Co., Ltd. 1,990 19.90 9,950 9,950 9,950 9,950 Asan Smart Water 195,600 15.00 978,000 1,061,130 1,061,130 995,604 Lotte Advanced Materials (Thailand) Co., Ltd.(*1) 58,800 49.00 203,274 227,437 227,437 201,980 Shinwon C.C. 5 0.67 1,716,730 2,200,000 2,200,000 1,350,000 22,081,433 27,829,617 27,829,617 28,867,134 \ 79,364,835 \ 27,856,568 \ 27,856,568 \ 28,894,085

(*1) The Group does not have significant influence as the voting rights are restricted by arrangements with other shareholders.

46 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

3) Investments in partnerships

(In thousands of 2019 2018 Korean won) Number of Ownership Acquisition Book shares owned (%) cost Fair value amount Book amount

Financial assets measured at fair value through profit or loss Construction Guarantee 4,429 0.11 \ 4,828,994 \ 6,617,370 \ 6,617,370 \ 6,562,273 Plant & Mechanical Contractors Financial Cooperative of Korea 74 0.01 67,192 71,861 71,861 70,985 Electronic Contractors’ Financial Cooperative 300 0.01 57,942 99,179 99,179 98,009 Information & Communication Financial Cooperative 100 0.01 20,967 39,979 39,979 37,932 Korea Electric Engineers Association 200 0.12 20,000 41,100 41,100 39,640 Engineering Financial Cooperative 113 0.01 11,568 73,038 73,038 69,357 Fire Guarantee, Seoul Division 40 0.02 20,000 20,000 20,000 20,000 \ 5,026,663 \ 6,962,527 \ 6,962,527 \ 6,898,196

(3) Changes in financial assets measured at fair value through other comprehensive income for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Balance as at January 1 \ 6,678,433 \ 5,182,074 Valuation 63,957 1,971,446 Deferred income tax (15,477) (475,087) Transfer from retained earnings 42,707 - Balance as at December 31 \ 6,769,620 \ 6,678,433

11. Financial Assets at Amortized Cost

Details of financial assets at amortized cost as at December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018 Current Non-current Current Non-current

Government and public bonds \ 101,850 \ 734,490 \ 152,345 \ 466,720

47 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

12. Investments in Associate and Joint Venture

(1) Details of associates and joint ventures of the Group as at December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018 Ownership Investee Region (%) Book amount Ownership (%) Book amount

Muharraq STP Company

B.S.C.(*1) Bahrain 6.59 \ 5,938,396 4.57 \ 4,299,075 Muharraq Holding

Company 1 Ltd.(*2) Bahrain 65.00 49,331,892 45.00 36,411,735 Cheonan eco-energy Domestic 29.40 4,219,225 29.40 3,324,704 PSS Netherlands B.V. Netherlands 28.00 12,117,382 28.00 10,928 TTSJV W.L.L. Bahrain 32.00 5,913,462 32.00 - Asociados Constructores

DBNR, S.A. de C.V.(*3) Mexico 49.00 2,948 - - \ 77,523,305 \ 44,046,442

(*1) Although the Group holds less than 20% of the equity shares of Muharraq STP Company B.S.C., the equity method was applied as the Group can exert influence through its seat in the investee’s Board of Directors. (*2) Although the Group holds 65% of the equity shares of Muharraq Holding Company 1 Ltd., the Group classified Muharraq Holding Company 1 Ltd. as a joint venture since it satisfied the classification standard of the joint venture, such as the existence of the unanimity on the agreement and others. (*3) The Company was newly established during the year ended December 31, 2019.

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

(In thousands of Korean won) 2019 Muharraq Muharraq Asociados STP Holding PSS Constructores Company Company 1 Cheonan Netherlands DBNR, S.A. de B.S.C. Limited eco-energy B.V. TTSJV W.L.L. C.V.

At January 1 \ 4,299,075 \ 36,411,735 \ 3,324,704 \ 10,928 \ - \ - Acquisition 268,857 8,236,228 - - - 3,082 Share of profit 2,069,487 10,979,144 894,521 12,188,660 6,035,046 (46) Others (699,023) (6,295,215) - (82,206) (121,584) (88)

At December 31 \ 5,938,396 \ 49,331,892 \ 4,219,225 \ 12,117,382 \ 5,913,462 \ 2,948

48 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(In thousands of Korean won) 2018 Muharraq Holding PSS Muharraq STP Company 1 Cheonan Netherlands Company B.S.C. Limited eco-energy B.V. TTSJV W.L.L.

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

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

1) Summarized financial position

(In thousands of Korean won) 2019 Muharraq Asociados Muharraq STP Holding PSS Constructores Company Company 1 Cheonan Netherlands DBNR, S.A. de B.S.C. Limited eco-energy TTSJV W.L.L. B.V. C.V.

Current assets \ 23,573,251 \ 23,683,538 \ 25,679,832 \ 637,292,862 \ 617,162,858 \ 6,016

Non-current assets 353,125,329 353,125,329 52,410,453 59,631,225 - -

Current liabilities 5,541,024 5,541,024 6,469,940 678,444,518 573,886,494 - Non-current liabilities 279,160,808 286,039,563 51,829,400 - - - Net asset attributed to controlling interest 91,996,748 75,895,209 19,790,945 18,479,569 43,276,364 6,016 Non-controlling interest - 9,333,071 - - - - Ownership percentage 6.59% 65.00% 29.40% 32.00% 28.00% 49.00% Net assets of equity shares 6,066,496 49,331,892 5,818,530 5,913,462 12,117,382 2,948 Unrealized gains and losses (128,100) - (1,599,305) - - - Book amount of associates \ 5,938,396 \ 49,331,892 \ 4,219,225 \ 5,913,462 \ 12,117,382 \ 2,948

49 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(In thousands of Korean won) 2018 Muharraq Asociados Muharraq STP Holding PSS Constructores Company Company 1 Cheonan Netherlands DBNR, S.A. de B.S.C. Limited eco-energy TTSJV W.L.L. B.V. C.V.

Current assets \ 23,311,730 \ 23,358,810 \ 18,238,295 \ 342,767,735 \ 39,029 \ -

Non-current assets 350,836,542 350,836,542 57,285,844 - - -

Current liabilities 4,785,111 4,785,111 5,542,142 345,409,415 - - Non-current liabilities 272,040,459 278,621,896 52,727,519 1,885,299 - - Net asset attributed to controlling interest 97,322,702 80,914,956 17,254,478 (4,526,979) 39,029 - Non-controlling interest - 9,873,389 - - - - Ownership percentage 4.57% 45.00% 29.40% 32.00% 28.00% 0.00% Net assets of equity shares 4,443,025 36,411,735 5,072,810 (1,448,633) 10,928 - Unrealized gains and losses (143,950) - (1,748,106) - - - Book amount of associates \ 4,299,075 \ 36,411,735 \ 3,324,704 \ - \ 10,928 \ -

2) Summarized financial performance

(In thousands of Korean won) 2019 Muharraq Asociados Muharraq STP Holding PSS Constructores Company Company 1 Cheonan Netherlands DBNR, S.A. de B.S.C. Limited eco-energy TTSJV W.L.L. B.V. C.V.

Sales \ 35,911,827 \ 35,911,827 \ 27,090,476 \ 1,345,674,898 \ 410,609,528 \ -

Operating profit 25,137,771 25,137,771 6,925,337 51,808,412 41,423,966 - Profit (loss) for the year 9,985,872 9,982,684 2,536,467 23,327,394 43,530,928 (94) Other comprehensive income (loss) (15,311,826) (15,542,749) - (320,846) (293,593) (180) Total comprehensive income (loss) (5,325,954) (5,560,065) 2,536,467 23,006,548 43,237,335 (274)

50 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(In thousands of Korean won) 2018 Muharraq Asociados Muharraq STP Holding PSS Constructores Company Company 1 Cheonan Netherlands DBNR, S.A. de B.S.C. Limited eco-energy TTSJV W.L.L. B.V. C.V.

Sales \ 31,988,282 \ 31,988,282 \ 27,477,494 \ 310,210,847 \ - \ -

Operating profit 23,383,522 23,383,522 7,467,282 12,391,660 - - Profit (loss) for the year 8,837,412 8,834,382 2,876,995 (4,483,028) - - Other comprehensive income (loss) 15,135,076 14,864,063 - (59,105) - - Total comprehensive income (loss) 23,972,488 23,698,445 2,876,995 (4,542,133) - -

13. Investments in Interests in Joint Operations

Project name Country Percentage of ownership (%)

KNPC Clean Fuels Project Kuwait 50.00 (“CFP”) UAE Borouge-3 LDPE Project UAE 45.00 Duqm Refinery Project Pkg.2 Oman 49.49 Thai Oil Clean Fuel Project Thailand 28.00

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

51 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

14. Investment Properties

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

(In thousands of Korean won) 2019 Land Building Total

Beginning balance \ 82,218,871 \ 108,279,054 \ 190,497,925 Depreciation - (2,747,037) (2,747,037) Ending balance \ 82,218,871 \ 105,532,017 \ 187,750,888 Acquisition costs \ 82,218,871 \ 129,557,492 \ 211,776,363 Accumulated depreciation - (24,025,475) (24,025,475)

(In thousands of Korean won) 2018 Land Building Total

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

(2) The Group’s revenue and expense regarding the investment properties recognized in the statements of comprehensive income for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018 Rental income \ 10,237,500 \ 8,115,934 Operating expense (4,497,261) (4,331,537) \ 5,740,239 \ 3,784,397

(3) The Group entered into an operating lease agreement with Samsung C&T for a part of the investment properties held by the Group in 2017. The future minimum lease payments expected to be received in relation to the above operating lease agreement for investment property as at December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018 Within one year \ 9,592,302 \ 9,497,329 Later than one year but not later than five years 19,473,333 29,065,635

52 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

15. Property, Plant and Equipment

(1) Changes in property, plant and equipment for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of 2019

Korean won) Furniture and Construction Leasehold Construction

Land Buildings Structures Machinery Vehicles fixtures equipment improvements in progress Total

Opening net

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

Acquisition and

capital

expenditure 184,713 9,993,953 - 11,429,807 6,533,776 6,243,790 6,200 - 482,082 34,874,321

Changes in

accounting

policy(*1) 15,740 33,460,788 - - 1,533,320 - - - - 35,009,848

Disposals (16,548) (3,028,224) (411,870) (967,697) (1,531,042) (1,409,744) (1,664,378) - - (9,029,503)

Depreciation (30,651) (13,262,724) (19,515) (9,018,075) (2,316,006) (4,085,937) (2,306,327) (70,234) - (31,109,469)

Others(*2) - 10,840 - 67,461 27,418 178,036 - 63,382 - 347,137

Closing net book

amount \130,997,427 \ 249,854,887 \ 28,011 \ 26,760,378 \ 5,396,332 \ 10,745,187 \ 2,946,496 \ 100,938 \ 1,181,082 \ 428,010,738

Acquisition costs \131,028,078 \ 314,562,405 \ 103,553 \ 76,633,459 \ 16,641,685 \ 138,603,435 \ 18,635,251 \ 2,571,282 \ 1,181,082 \ 699,960,230

Accumulated

depreciation (30,651) (64,707,518) (75,542) (49,873,081) (11,245,353) (127,858,248) (15,688,755) (2,470,344) - (271,949,492)

(*1) Property, plant and equipment (right-of-use assets) increased due to adoption of the new leasing standard as at January 1, 2019 (Note 34). (*2) Includes changes due to foreign currency exchange rate fluctuation.

53 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(In thousands of 2018

Korean won) Furniture and Construction Leasehold Construction

Land Buildings Structures Machinery Vehicles fixtures equipment improvements in progress Total

Opening net

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

Acquisition and

capital

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

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

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

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

Closing net book

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

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

Accumulated

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

(*1) Includes changes due to foreign currency exchange rate fluctuation

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

(In thousands of Korean won) 2019 At historical cost Book amount Fair value(*)

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

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

54 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

16. Intangible Assets

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

(In thousands of 2019 Korean won) Membership Other Construction

rights intangible assets Software in progress Total

Beginning balance \ 8,529,947 \ 1,099,809 \ 41,447,173 \ 3,734,204 \ 54,811,133 Additions - 84,496 4,959,222 3,874,984 8,918,702 Disposal (31,224) (2,441) (105,676) - (139,341) Amortization - (266,653) (27,772,484) - (28,039,137) Reclassification - - 3,633,405 (3,633,405) - Others(*) 3,347 132,424 2,047 - 137,818 Ending balance \ 8,502,070 \ 1,047,635 \ 22,163,687 \ 3,975,783 \ 35,689,175

Acquisition costs \ 9,095,257 \ 2,574,447 \ 195,786,362 \ 3,975,783 \ 211,431,849 Accumulated

depreciation - (1,526,812) (173,622,675) - (175,149,487) Accumulated

impairment loss (593,187) - - - (593,187)

(*) Includes changes due to foreign currency exchange rate fluctuation.

(In thousands of 2018 Korean won) Membership Other Construction

rights intangible assets Software in progress Total

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

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

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

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

(*) Includes changes due to foreign currency exchange rate fluctuation.

55 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

17. Borrowings

(1) Details of carrying amount of borrowings as at December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) Annual interest Latest rate (%) as at Category Creditor maturity date December 31, 2019 2019 2018 Short-term borrowings Libor(3M)+0.65% ~Libor(3M)+1.45%, General loan Citi Bank and others 2020-12-14 \ 148,179,055 \ 195,101,447 BIBOR(1M~6M)+1.1 5%, 3M MCLR General loan Woori Bank - - - 23,700,000 General loan KEB Hana Bank - - - 33,543,000 Korea Investment & General loan - - - 86,000,000 Securities Co., Ltd. Kookmin Bank and General loan - - - 70,200,000 others Collateralized KEB Hana Bank(*1) - - - 30,000,000 borrowings \ 148,179,055 \ 438,544,447 Current portion of long-term borrowings General loan IBK Capital - - \ - \ 15,600,000 Bank of China and General loan - - - 23,400,000 others \ - \ 39,000,000

(*1) As at December 31, 2019, the Group has entered into a factoring agreement with KEB Hana Bank, and there is no balance of receivables that are not yet matured.

56 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(2) As at December 31, 2019 and 2018, bonds issued by the Group are as follows:

(In thousands of Korean won) Annual interest Latest maturity rate (%) as at Category date December 31, 2019 2019 2018

Private, non-guaranteed - - \ - \ 10,000,000 bonds (14-2th) Private, non-guaranteed - - - 10,000,000 bonds (14-3th) Private, non-guaranteed - - - 20,000,000 bonds (16th) Private, non-guaranteed - - - 20,000,000 bonds (17th) Private, non-guaranteed - - - 20,000,000 bonds (18th) Subtotal \ - \ 80,000,000 Bonds expiring within a year - (80,000,000) Total \ - \ -

18. Post-Employment Benefit Plan

(1) Defined Contribution Plan

The Group operates some employees' retirement benefit plans as defined contributions depending on the employees' choices. Plan assets are operated in the form of funds that are legally separate from the Group and controlled by the fiduciary. In the case that employees leave the Group before satisfying vesting requirements of defined contribution plan, the Group's payments for contributions are decreased by the same amount of loss of contributions due to early retirements. The expense recognized in relation to defined contribution plan for the years ended December 31, 2019 and 2018, are \ 2,509,622 thousand and \ 2,154,483 thousand, respectively.

(2) Defined Benefit Plan

The Group operates defined benefit retirement pension for employees. The employees are entitled to the lump sum benefit which is multiplied by the final three-month average payment over the period of service. The Group is exposed to investment risk, interest rate risk and wage risk due to the defined benefit plan. The latest actuarial remeasurement of the plan asset and defined liability is conducted by an independent actuary; and the present value of defined liability, current service cost and past service cost are measured using projected unit credit method (PUC method).

57 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

(In thousands of Korean won) 2019 2018

Present value of defined benefit liability \ 341,140,721 \ 279,465,280 Fair values of plan assets(*1) 292,379,787 229,491,553 Net defined benefit liabilities \ 48,760,934 \ 49,973,727

(*1) The contributions to the National Pension Fund of \ 181 million are included in the fair value of plan assets as at December 31, 2019 (2018: \ 181 million).

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

(In thousands of Korean won) 2019 2018

Beginning balance \ 279,465,280 \ 253,664,818 Current service cost 31,207,606 29,420,078 Interest expense 7,632,505 8,089,344 Past service costs 9,104,190 - Remeasurements: Actuarial loss from change in demographic assumptions 4,980 - Actuarial loss from change in financial assumptions 14,233,356 13,933,916 Actuarial loss from experience adjustments 17,309,183 4,322,703 Payments from plans: (17,850,982) (29,136,724) Transfer to associates (91,834) (1,245,687) Others (exchange differences and others) 126,437 416,832 Ending balance \ 341,140,721 \ 279,465,280

58 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

(In thousands of Korean won) 2019 2018

Beginning balance \ 229,491,553 \ 210,260,793 Interest income 5,854,017 6,277,661 Remeasurements: Return on plan assets (excluding amounts included in interest income) (1,713,317) (3,222,669) Contributions: Employers 74,000,000 45,000,000 Payments from plans: (15,168,055) (28,770,706) Transfer to associates (84,411) (53,526) Ending balance \ 292,379,787 \ 229,491,553

4) Expected contributions to plan assets for the year ending December 31, 2020, are \ 36,717 million.

5) The remeasurements recognized in other comprehensive income for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Remeasurements before considering deferred income tax \ (33,260,836) \ (21,479,288) Tax effect 7,937,340 5,245,987 Remeasurements after considering deferred income tax \ (25,323,496) \ (16,233,301)

6) The significant actuarial assumptions as at December 31, 2019 and 2018, are as follows:

2019 2018

Discount rate 2.50% 2.90% Weighted-average salary growth rate 4.14% 3.89% (including inflation) Death rate Depending on age Depending on age Retirement rate Depending on age Depending on age Retirement age 55–65 55–65

59 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

7) Details of plan assets as at December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Quoted price Composition Quoted price Composition

Cash and cash equivalents \ 292,198,785 99.9 % \ 229,310,551 99.9 % Others 181,002 0.1 % 181,002 0.1 % \ 292,379,787 100.0 % \ 229,491,553 100.0 %

8) Actual gains from the plan assets as at December 31, 2019, and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Actual gains from plan assets \ 4,530,836 \ 3,412,435

9) The sensitivity of the defined benefit obligations as at December 31, 2019 and 2018, due to changes in the principal assumptions is:

(in percentage) 2019 Impact on defined benefit obligation Changes in Increase in Decrease in assumption assumption assumption

Discount rate 1.00% 6.47% decrease 7.38% increase Salary growth rate 1.00% 7.49% increase 6.68% decrease

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

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

A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bondholding. The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The sensitivity of the defined benefit obligation to changes in principal actuarial assumptions is calculated using the projected unit credit method, the same method applied when calculating the defined benefit obligations recognized on the statement of financial position.

60 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

10) Expected maturity analysis of undiscounted pension benefits as at December 31, 2019 and 2018, are as follows:

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

December 31, 2019 \ 35,255 \ 41,804 \ 113,908 \ 161,051 December 31, 2018 \ 29,176 \ 35,122 \ 96,715 \ 145,849

11) Weighted average duration of defined benefit obligations as at December 31, 2019 and 2018, are 6.92 years and 7.01 years, respectively.

19. Provisions

The changes in provisions for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 Provision for Provision for construction construction Provision for Provision for warranties losses litigation restoration

Balance as at January 1 \ 39,704,558 \ 78,891,453 \ 1,088,800 \ 235,642

Increase 18,528,451 5,412,324 1,807,085 -

Decrease (8,795,448) (47,728,617) (900,000) (55,086)

Others 233,059 - - 22,655

Balance as at December 31 49,670,620 36,575,160 1,995,885 203,211

Within 1 year 8,778,471 36,575,160 1,995,885 203,211

More than 1 year 40,892,149 - - -

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

172,251 Balance as at January 1 \ 38,866,316 \ - \ 5,924,659 \ - Effect of changes in accounting policy - 84,648,893 - 55,086 Increase 5,294,615 34,944,707 975,635 - Decrease (3,205,041) (40,702,147) (5,811,494) 8,305 Others (1,251,332) - - 235,642 Balance as at December 31 39,704,558 78,891,453 1,088,800 235,642 Within 1 year 8,459,977 78,891,453 1,088,800 - More than 1 year 31,244,581 - -

61 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

Provisions are included in 'other current liabilities' and 'other non-current liabilities' as at the year ended December 31, 2019.

20. Share Capital and Share premium

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

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

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

In addition, the Company is authorized to issue to investors, other than current shareholders, convertible debentures and debentures with warrants with face values of up to \100 billion each. The convertible debentures amounting to \60 billion and \40 billion are assigned to ordinary share and preferred share, respectively. The debentures with warrants amounting to \60 billion and \40 billion are likewise assigned to ordinary shares and preferred share, respectively. As at December 31, 2019, there is no outstanding preferred share or debenture issued on these terms.

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

The Company has a stock option plan under which options to purchase shares of ordinary shares may be granted to key employees or directors who have contributed, or are expected to contribute, to the management and technological innovation of the Company. There are no stock options granted as at December 31, 2019.

21. Retained Earnings

(1) Legal Reserve

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

62 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(2) Retained earnings as at December 31, 2019 and 2018, consists of the following:

(In thousands of Korean won) 2019 2018

Legal reserve \ - \ - Reserve for research and human resource development - 657,703 Retained earnings 526,287,579 233,024,167 \ 526,287,579 \ 233,681,870

Changes in retained earnings for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Beginning balance \ 233,681,870 \ 169,590,585 Adjustments to beginning balance of retained earnings from adoption of Korean IFRS 1115 - (5,929,176) Adjustments to beginning balance of retained earnings from adoption of Korean IFRS 1109 - 1,335,718 Adjustments of other comprehensive income (42,707) - Profit (loss) for the year 292,648,416 68,684,743 Ending balance \ 526,287,579 \ 233,681,870

22. Other Components of Equity

Other components of equity as at December 31, 2019 and 2018, consist of the following:

(In thousands of Korean won) 2019 2018

Other capital surplus \ (17,772,717) \ (19,366,303) Loss on sale of treasury share (131,862,753) (131,862,753) Gain on valuation of financial assets at fair value through other comprehensive income 6,769,620 6,678,433 Share of other comprehensive income of associates and joint ventures (5,200,769) 363,216 Gain on valuation of derivatives 7,698,385 9,870,151 Loss on valuation of derivatives (14,789,496) (22,086,954) Exchange differences on translation of foreign operations (52,787,937) (52,125,280) Gain on revaluation 78,370,674 78,370,674 Remeasurements of net defined benefit liabilities (53,865,826) (28,542,309) Total \ (183,440,819) \ (158,701,125)

63 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

23. Engineering Contracts

(1) Engineering and construction contract balances and related revenues recognized for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Beginning balance \ 9,947,985,745 \ 5,982,701,364 Amendments 3,556,059,714 3,368,875,464 New contracts 1,481,179,762 6,046,499,798 Effect of changes in accounting standard (adoption of Korean IFRS 1115) - 29,710,228 Total 14,985,225,221 15,427,786,854 Construction revenue(*1) 6,367,980,187 5,479,801,109 Ending balance \ 8,617,245,034 \ 9,947,985,745

(*1) The amount of revenue includes \ 86,672 million (2018: \ 71,106 million) arising from design services and contract business management services.

The Group is responsible for contract performances and construction warranties related to the above contracts. The Group has also been provided with guarantees by Kookmin Bank and others with respect to the contracts. The Group recognized provisions for construction warranties representing estimated costs of future repairs, as well as provisions for construction losses for the estimated losses of construction contracts. Detailed information on provisions is provided in Note 19.

(2) Details of gross due from customers and gross due to customers as at December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Costs incurred to date \ 55,140,154,848 \ 54,074,866,337 Addition: Accumulated income 5,610,590,721 5,534,505,714 Deduction: Accumulated loss (3,440,658,336) (3,854,704,749) Total contract revenues (contract work in progress) incurred to date 57,310,087,233 55,754,667,302 Deduction: Progress billings (58,688,853,241) (56,846,581,877) Subtotal (1,378,766,008) (1,091,914,575) Amounts due from customers 325,844,674 595,208,836 Amounts due to customers (1,627,143,373) (1,576,987,377) Provision for construction warranties (40,892,149) (31,244,581) Provision for construction losses (36,575,160) (78,891,453) Subtotal \ (1,378,766,008) \ (1,091,914,575)

64 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

As at December 31, 2019, retentions held by customers for contract work amounted to ￦ 92,739 million (2018: ￦ 95,218 million) and advances received from customers for contract work amounted to ￦ 610,199 million (2018: ￦ 717,231 million).

(3) The contracts continued from December 31, 2018, those recognized revenue under stage of completion using the input method, that have impact from the changes in estimates of total contract revenue and costs, for the year ended December 2019 and succeeding year are as follows:

(In thousands of Korean won) 2019 Hydrocarbon Non-hydrocarbon

business business Total

Changes in total contract revenue \ 477,273,499 \ 3,141,606,364 \ 3,618,879,863 Changes in estimated costs to

complete 449,357,850 2,672,431,207 3,121,789,057 Changes in estimated total contract

revenue and costs 27,915,649 469,175,157 497,090,806 Impact on profit or loss for the year 24,022,595 384,277,916 408,300,511 Impact on profit or loss for

the succeeding year 3,893,054 84,897,241 88,790,295 Changes in amounts due from

customers 105,936,024 288,263,461 394,199,485 Changes in amounts due to customers 81,913,429 (96,014,455) (14,101,026)

65 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(4) The main contracts, recognizing revenue under stage of completion using the input method for the year ended December 31, 2019 whose contract revenue is more than 5% of revenue recognized for the year ended December 31, 2018, are as follows:

(In thousands of Amounts due Construction work Korean won) from customers account receivable Accumulated Contract Due Stage-of- Total impairment Total Allowance Area Name of contract date date(*1) completion amount Losses amount account Vietnam LSP Hydro 2018-09-14 2022-12-31 15.47% \ - \ - \ 5,374,389 \ 16,123 HDPE/PP Project

Hydro YPFB Ammonia/Urea 2012-09-13 2019-04-30 99.58% - - 499,094 1,497 Hydro Lotte MEG-1 Project 2015-10-01 2019-04-30 99.99% - - - - Hydro RAPID PKG.11 EO/EG 2015-12-03 2020-07-31 97.09% 511,668 - - - Hydro RAPID #6A LLDPE 2015-12-03 2020-04-30 97.98% 3,765,670 - 23,846 72 Thailand PTTGC ORP Hydro 2017-06-01 2020-11-30 71.93% - - 9,422,269 28,267 Ethylene Thailand PTTGC Hydro 2017-08-28 2020-07-28 78.52% - - 13,235,370 39,706 Oxirane PO Hydro UNITED EOEG III PJT 2018-01-03 2020-10-02 69.68% - - 27,264,558 81,794 China Electronics Non-Hydro Semiconductor X2 2017-09-01 2021-03-31 75.55% - - 55,751,169 167,254 Project SEVT Metal/3D Glass Non-Hydro 2015-01-14 2020-12-31 97.08% - - 78 - Project Tangjeong SDC new Non-Hydro plant construction 2017-06-01 2021-12-31 49.95% 62,115,000 - - - project Busan electric power Non-Hydro 2017-02-12 2020-06-30 91.46% 15,908,179 - 13,420,501 40,262 M project UAE ADNOC Refining Hydro 2018-02-28 2022-08-27 29.85% - - 93,642,934 280,929 CFP Oman Duqm Refinery Hydro 2018-06-03 2022-04-30 24.21% - - 27,281,351 81,844 Project Pkg.2 Takreer Carbon Black Hydro 2012-07-31 2019-06-30 98.10% - - 2,094,540 6,284 & Delayed Coker Luberef Yanbu Hydro 2010-10-20 2020-03-31 99.31% 63,819,061 - 14,530,862 43,593 Refinery Expantion Hydro KNPC CFP MAB#1 2014-04-13 2020-10-31 91.98% - - 3,260,066 9,780 UAE ADNOC Refining Hydro 2018-03-25 2023-06-24 32.88% - - 12,693,958 38,082 WHRP PTI-ID Dos Bocas Hydro 2019-08-01 2020-05-26 30.70% 958,345 - 56,432,398 169,297 New Refinery Phase I Hydro TOP UJV 2018-11-01 2023-08-31 2.54% 6,654,964 - - - SOCAR Ammonia and Hydro 2014-02-18 2019-06-30 99.05% - - 2,252 7 Urea Complex S3 Line Construction Non-Hydro 2012-06-16 2020-02-28 98.06% - - 14,370,950 43,113 (Ph-1) Project P-PJT Construction Non-Hydro 2015-07-05 2019-12-31 99.96% - - - - Work Non-Hydro Hwaseong E-PJT 2017-08-01 2020-05-31 78.94% - - 39,820,000 119,460 Non-Hydro Pyengtaek P2-PJT 2017-08-01 2020-06-30 78.66% - - 512,325,000 1,536,975 Non-Hydro K-PJT Finishing Work 2011-09-26 2020-12-31 98.06% 11,288,681 - 12,405,800 37,217

66 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

Hungary SDI battery Non-Hydro 2016-04-25 2020-06-30 98.70% 37,639,764 - 571,579 1,715 plant Tianjin Electric Non-Hydro 2018-07-05 2020-06-30 68.11% 14,778,368 - 2,859,369 8,578 Complex 2 Gazprom Badra Hydro 2013-02-13 2020-03-31 99.27% 4,568,460 - - - Project Timimoun (TFD) Hydro 2014-04-01 2019-07-31 99.53% 2,176,699 - 19,375,062 58,125 Project

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

(5) The major joint-engineering projects as at December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 Contract amount Share of Total contract of the Group’s the Group amount share (%) Lead party

Reclamation of land and appurtenant \ 381,617,031 \ 293,845,114 77.00 The Company work in metropolitan area #3 Yongsan soil pollution cleaning 264,100,000 26,410,000 10.00 Samsung C&T Co. facility Asan public sewage and recycle 132,787,142 112,946,999 85.06 The Company facility Korea Water Dong-bu sewage treatment 67,772,000 33,208,280 49.00 Resources facility Corporation Construction for WorldCup Big 185,330,834 37,066,167 20.00 Samsung C&T Co. Bridge Okjeong sewage treatment 35,054,670 17,877,882 51.00 The Company facility construction Dongdaemun Design Plaza construction electrical 23,321,802 19,123,877 82.00 The Company engineering

67 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

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

(6) Details of the contracts of which the stage of completion is estimated as the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs as at December 31, 2019, are as follows:

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

Hydrocarbon business \ 23,500,125 \ 24,022,595 \ - \ 449,357,850 \ - \ 140,773,630 \ (581,188) Non-hydrocarbon business 13,075,035 384,277,916 - 2,672,431,207 - 185,652,232 -

Total \ 36,575,160 \ 408,300,511 \ - \ 3,121,789,057 \ - \ 326,425,862 \ (581,188)

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

68 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

24. Expenses by Nature

Expenses by nature for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Materials and outsourcing cost \ 4,593,572,205 \ 3,855,851,238 Wages and salaries 672,696,704 641,938,619 Severance and retirement benefits 45,788,405 33,529,623 Welfare expense 108,179,045 107,226,567 Travel expenses 30,941,524 29,098,930 Rental expense 42,254,457 58,374,997 Depreciation 33,856,506 31,904,587 Amortization 28,039,137 28,429,209 Transportation expense 49,544,264 26,639,880 Commissions and fees 221,743,934 284,514,383 (Reversal of provision for) Impairment loss on receivables (362,462) 2,913,562 Reversal of provision for construction losses (43,059,563) (6,293,666) Other expenses 199,310,235 179,592,389 Total (*) \ 5,982,504,391 \ 5,273,720,318

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

69 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

25. Selling, General and Administrative Expenses

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

(In thousands of Korean won) 2019 2018

Wages and salaries \ 183,527,569 \ 151,738,659 Severance and retirement benefits 14,834,252 12,101,842 Welfare expense 30,868,165 27,670,068 Travel expenses 7,044,829 5,750,049 Communication expenses 5,566,993 6,122,171 Water, light and heating expenses 3,217,075 3,103,748 Taxes and dues 6,469,721 4,840,257 Rental expense 5,343,299 6,329,573 Depreciation 14,155,318 7,838,054 Amortization 27,114,749 27,778,303 Commissions and fees 30,474,177 45,396,208 Conference expenses 3,766,611 3,463,509 Training expenses 2,544,254 1,288,979 Outside processing expenses 22,076,497 16,476,875 Other expenses 5,281,704 2,271,833 (Reversal of provision for) Impairment loss on receivables (362,462) 2,913,562 Others 14,822,927 16,783,561 Total \ 376,745,678 \ 341,867,251

70 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

26. Other Income and Expense

Other income for the years ended December 31, 2019 and 2018, consists of:

(In thousands of Korean won) 2019 2018

Dividend income \ 3,025,283 \ 2,502,583 Commission income 6,847,201 7,781,026 Gain on disposal of property, plant and equipment 1,350,828 4,313,097 Gain on disposal of intangible 299,273 - Rent 11,371,523 5,219,326 Gain on foreign currency transactions 132,177,379 79,853,057 Gain on foreign currency translation 39,558,663 29,209,184 Gain on derivatives transactions 21,966,473 13,903,403 Gain on valuation of derivatives 17,163,342 7,433,562 Gain on valuation of firm commitment 48,230,695 18,545,333 Reversal of provision for impairment on other receivables 1,570,270 56,138 Reversal of provision for contingent loss - 5,617,893 Gain on valuation of financial assets at fair value through profit or loss 135,460 109,372 Miscellaneous gain 2,172,985 3,497,637 Total \ 285,869,375 \ 178,041,611

71 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

Other expenses for the years ended December 31, 2019 and 2018, consist of:

(In thousands of Korean won) 2019 2018

Commission expense \ 1,800,907 \ 5,224,748 Impairment loss on other receivables 195,041 121,461 Loss on disposal of trade receivable 10,050,529 9,063,829 Loss on disposal of property, plant and equipment 2,426,031 8,498,529 Loss on disposal of intangible assets 102,245 4 Donations 861,693 251,392 Loss on foreign currency transactions 128,990,972 71,481,723 Loss on foreign currency translation 52,211,365 27,912,486 Loss on derivatives transactions 59,044,936 13,654,011 Loss on valuation of derivatives 29,052,397 12,087,188 Loss on valuation of firm commitment 11,434,211 9,323,458 Contribution to provision for contingent loss 1,807,307 975,635 Loss on valuation of financial assets at fair value through profit or loss 71,130 21,275,927 Miscellaneous loss 221,023 354,499

Total \ 298,269,787 \ 180,224,890

27. Income Tax

(1) Income tax expense for the years ended December 31, 2019 and 2018, consists of the following:

(In thousands of Korean won) 2019 2018

Current taxes: Current tax on profits for the year \ 59,796,653 \ 72,601,596 Adjustments in respect of current years 77,958 (15,130,859) Total current tax 59,874,611 57,470,737 Deferred income tax due to temporary difference 36,620,970 29,291,277 Items charged directly to equity(*) 8,461,838 13,218,208 Income tax expense \ 104,957,419 \ 99,980,222

72 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(*) The aggregate current and deferred tax relating to items that are charged or credited directly to equity for the years ended December 31, 2019 and 2018, is as follows:

(In thousands of Korean won) 2019 2018

Financial assets at fair value through other comprehensive loss \ (15,478) \ (475,087) Gain (loss) on valuation of derivatives (1,636,435) 7,792,907 Gain on remeasurement of net defined benefit liabilities 7,937,341 5,245,987 Others 2,176,410 654,401 Total \ 8,461,838 \ 13,218,208

(2) The following table reconciles the expected amount of income tax expense based on statutory rates to the actual amount of taxes recorded by the Group for the years ended December 31, 2019 and 2018:

(In thousands of Korean won) 2019 2018

Profit before income tax \ 400,538,065 \ 170,176,658 Expected taxes at statutory rate 97,115,192 73,501,583 Adjusted: Permanent difference (4,559,031) (1,479,945) Additional tax payment (1,303,400) (7,285,946) Effect of unrecognized deferred income tax on temporary differences 16,287,472 39,583,595 Tax credit and other (2,582,814) (4,339,065) Income tax expense \ 104,957,419 \ 99,980,222 Effective tax rate 26.20% 58.75%

73 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(3) The movements in deferred tax assets and liabilities for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 Beginning Increase Ending Balance (Decrease) Balance Taxable temporary differences (1) Reserve for technology development \ - \ - \ - Severance insurance deposits (55,493,153) (15,218,953) (70,712,106) Share of loss of associates (1,722,742) - (1,722,742) Depreciation expense (1,087,829) 339,603 (748,226) Gain on revaluation of land (25,020,717) - (25,020,717) Dividend Income (16,678,984) - (16,678,984) Other (24,896,723) (5,945,246) (30,841,969) Subtotal (124,900,148) (20,824,596) (145,724,744) Deductible temporary differences (2) Provision for severance and retirement benefits 67,063,772 14,701,217 81,764,989 Annual paid leave obligation 4,678,277 713,882 5,392,159 Provision for construction warranties 8,010,440 1,818,272 9,828,712 Provision for construction losses 16,730,669 (8,610,973) 8,119,696 Provisions for contingencies 263,490 206,719 470,209 Other 498,677,054 2,470,108 501,147,162 Subtotal 595,423,702 11,299,225 606,722,927 Total temporary differences 470,523,554 (9,525,371) 460,998,183 Donations carried forward 290,204 202,639 492,843 Deferred income tax due to tax credits 53,877,630 (5,897,144) 47,980,486 Deferred income tax due to tax losses 242,227,453 (21,401,095) 220,826,358 \ 766,918,841 \ (36,620,971) \ 730,297,870

74 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(In thousands of Korean won) 2018 Beginning Increase Ending Balance (Decrease) Balance Taxable temporary differences (1) Reserve for technology development \ (159,164) \ 159,164 \ - Severance insurance deposits (50,838,570) (4,654,583) (55,493,153) Share of loss of associates (1,722,742) - (1,722,742) Depreciation expense (1,455,493) 367,664 (1,087,829) Gain on revaluation of land (25,020,717) - (25,020,717) Dividend Income (13,089,828) (3,589,156) (16,678,984) Other (16,652,394) (8,244,329) (24,896,723) Subtotal (108,938,908) (15,961,240) (124,900,148) Deductible temporary differences (2) Provision for severance and retirement benefits 60,767,284 6,296,488 67,063,772 Annual paid leave obligation 4,987,094 (308,817) 4,678,277 Provision for construction warranties 7,592,705 417,735 8,010,440 Provision for construction losses 21,484,741 (4,754,072) 16,730,669 Provisions for contingencies 1,436,082 (1,172,592) 263,490 Other 366,705,083 131,971,971 498,677,054 Subtotal 462,972,989 132,450,713 595,423,702 Total temporary differences 354,034,081 116,489,473 470,523,554 Donations carried forward 241,861 48,343 290,204 Deferred income tax due to tax credits 57,390,257 (3,512,627) 53,877,630 Deferred income tax due to tax losses 384,543,919 (142,316,466) 242,227,453 \ 796,210,118 \ (29,291,277) \ 766,918,841

75 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(4) Details of deductible temporary differences not recognized as deferred tax assets as at December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 2018

Unused tax credits \ 142,055,021 \ 144,914,425

The Group expected to fail to generate sufficient taxable income, so doesn't recognized the unused tax credit carried forward as the deferred tax asset. The maturity of unused tax credit carried forward is as follows:

(In thousands of Korean won) 2019 2018

2021 \ 51,457,332 \ 44,992,407 2022 41,208,036 35,749,855 2023 42,095,863 64,172,163 2024 7,293,790 -

28. Earnings per Share

Basic earnings per share for the years ended December 31, 2019 and 2018, is calculated as follows:

(In Korean won and number of shares) 2019 2018

Profit attributable to the ordinary equity holders of the Parent Company \ 292,648,415,750 \ 68,684,742,777 Weighted-average number of ordinary shares outstanding 196,000,000 196,000,000 Basic earnings per share \ 1,493 \ 350

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

76 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

29. Related-party Transactions

(1) Details of associates and other related parties that have sales and other transactions with the Group or have outstanding balances as at December 31, 2019 and 2018, are as follows:

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

(*1) The Group provides construction performance and other guarantees for the related parties (Refer to Note 33). (*2) The Company was newly established during the year ended December 31, 2019. (*3) Although the entity is not the related party of the Group in accordance with Korean IFRS 1024, the entity belongs to the Large Enterprise Group to which the Group also belongs in accordance with the Monopoly Regulation and Fair Trade Act.

77 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

(In thousands of Korean won) 2019 Sales and others Purchases and others Sales Others Purchases Others Associates and Joint ventures: Muharraq STP Company B.S.C. \ 10,839,378 \ - \ - \ - Cheonan eco-energy 9,578,797 - - - TTSJV WLL 48,203,945 9,834,652 - - Subtotal 68,622,120 9,834,652 - - Entities belongs to the Large Enterprise Group: Samsung Electronics Co., Ltd. 1,943,470,209 - 5,488,416 - Samsung Display Co., Ltd. 106,476,920 - 36,667 - Samsung Biologics Co., Ltd. 5,166,032 - - - Samsung SDI Co., Ltd. 59,900,680 - - - Samsung Electro-Mechanics Co., Ltd. 150,396,412 - 6,919 - Samsung SDS CO., LTD. - - 36,816,203 - Samsung Card Co., Ltd. - 29,381 782,386 - Samsung Heavy Industry Co., Ltd. - - 806,712 - S-1 CO., LTD. - - 14,444,947 - SUMaterials Co., Ltd. 681,071 - - - Others - 16,101,148 24,929,822 - Subtotal 2,266,091,324 16,130,529 83,312,072 - Total \ 2,334,713,444 \ 25,965,181 \ 83,312,072 \ -

78 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(In thousands of Korean won) 2018 Sales and others Purchases and others Sales Others Purchases Others Associates and Joint ventures: Muharraq STP Company B.S.C. \ 13,888,340 \ - \ - \ - Cheonan eco-energy 11,514,225 - - - TTSJV WLL 26,463,947 5,688,043 - - Subtotal 51,866,512 5,688,043 - - Entities belongs to the Large Enterprise Group: Samsung Electronics Co., Ltd. 1,239,721,037 - 3,579,545 - Samsung Display Co., Ltd. 544,953,822 - 47,695 - Samsung Biologics Co., Ltd. 78,967,885 - - - Samsung SDI Co., Ltd. 236,445,423 - - - Samsung Electro-Mechanics Co., Ltd. 114,132,959 - 7,643 - Samsung SDS CO., LTD. - - 39,743,162 - Samsung Card Co., Ltd. - 27,452 8,634,603 - Samsung Heavy Industry Co., Ltd. - - 1,651,071 - S-1 CO., LTD. - - 14,855,418 - SUMaterials Co., Ltd. 1,175,895 - - - Others 20,373 17,186,440 20,539,771 - Subtotal 2,215,417,394 17,213,892 89,058,908 - Total \ 2,267,283,906 \ 22,901,935 \ 89,058,908 \ -

79 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

(In thousands of Korean won) 2019 Receivables Payables Due from Due to Trade customers for Long-term Trade customers for receivables contract work loans Others payables contract work Others Associates and Joint ventures: Muharraq STP Company B.S.C. \ 2,080,613 \ - \ - \ - \ - \ 65 \ - Muharraq Holding Company 1 Ltd. - - 23,374,943 - - - - TTSJV WLL 3,653,445 116,726 - 15,645,665 - 21,286,950 - Subtotal 5,734,058 116,726 23,374,943 15,645,665 - 21,287,015 - Entities belongs to the Large Enterprise Group: Samsung Electronics Co., Ltd. 615,830,960 579,885 - - 2,688,513 170,195,872 - Samsung Display Co., Ltd. 13,505,800 73,966,829 - - 874 5,207,593 - Samsung Biologics Co., Ltd. - - - - - 1,005,298 - Samsung SDI Co., Ltd. 14,424,729 12,369,485 - - - 8,070,853 - Samsung Electro- Mechanics Co., Ltd. 13,420,501 15,908,179 - - - 207,831 - Samsung SDS CO., LTD. - - - - 3,702,756 - - Samsung C&T Corporation - - - 6,897,834 749,575 - 4,550,059 S-1 CO., LTD. - - - - 1,655,821 - - Samsung Card Co., Ltd. - - - 109,013 - - 780,599 SUMaterials Co., Ltd. 242,220 - - - - 729,755 - Others - - - 537,990 728,059 - 2,326,907 Subtotal 657,424,210 102,824,378 - 7,544,837 9,525,598 185,417,202 7,657,565 Total \ 663,158,268 \ 102,941,104 \ 23,374,943 \ 23,190,502 \ 9,525,598 \ 206,704,217 \ 7,657,565

80 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(In thousands of Korean won) 2018 Receivables Payables Due from Due to Trade customers for Long-term Trade customers for receivables contract work loans Others payables contract work Others Associates and Joint ventures: Muharraq STP Company B.S.C. \ 1,458,100 \ - \ - \ - \ - \ 235,416 \ - Muharraq Holding Company 1 Ltd. - - 18,254,766 - - - - TTSJV WLL - 26,463,947 - 5,688,043 - - - PSS Netherlands B.V. ------10,928 Subtotal 1,458,100 26,463,947 18,254,766 5,688,043 - 235,416 10,928 Entities belongs to the Large Enterprise Group: Samsung Electronics Co., Ltd. 428,191,229 83,668,680 - - 1,029,236 242,864,624 Samsung Display Co., Ltd. 84,770,326 35,300,119 - - 3,921 17,894,852 Samsung Biologics Co., Ltd. 75,343,455 367,000 - - - 6,171,331 Samsung SDI Co., Ltd. 91,574,560 11,703,524 - - - 4,273,229 Samsung Electro- Mechanics Co., Ltd. 5,245,401 13,089,621 - - 701 845,684 Samsung SDS CO., LTD. - - - - 6,367,298 - Samsung C&T Corporation - - - 7,037,765 5,236,876 - 4,550,059 S-1 CO., LTD. - - - - 1,419,184 - - Samsung Card Co., Ltd.(*1) - - - 85,958 - - 640,416 SUMaterials Co., Ltd. 162,360 - - - - 1,092,225 - Others 123,134 - - 460,000 3,084,653 - 44,820 Subtotal 685,410,465 144,128,944 - 7,583,723 17,141,869 273,141,945 5,235,295 Total \ 686,868,565 \ 170,592,891 \ 18,254,766 \ 13,271,766 \ 17,141,869 \ 273,377,361 \ 5,246,223

(*1) The contracts with Samsung Card CO., LTD concerning purchasing card and trade receivables factoring were terminated on September 30, 2018. In relation to purchasing card transactions, the Group has transferred purchasing card receivables amounting to \ 336,791 million which has been redeemed entirely for the year ended December 31, 2018 and there is no outstanding balance as at December 31, 2018. In relation to factoring of trade receivables, the Group has transferred trade receivables amounting to \ 1,629,070 million for the year ended December 31, 2018 and there was no balance that has not reached its maturity as at December 31, 2018.

81 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(4) Fund transactions with related parties for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 Contributions in cash Collection of loans Associates and Joint ventures: Muharraq Holding Company 1 Ltd. \ - \ 3,581,127 PSS Netherlands B.V. 10,791 - Asociados Constructores DBNR, S.A. de C.V. 3,082 -

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

(5) The Group is in contract with Samsung Life Insurance Co., Ltd regarding the defined benefit plan. The fair value of the plan as at December 31, 2019, amounts to \ 292,199 million (2018: \ 229,311 million); and interest income recognized amounts to \ 4,531 million for the year ended December 31, 2019 (2018: \ 3,412 million).

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

(In thousands of Korean won) 2019 2018

Short-term employee benefits \ 16,532,609 \ 12,050,256 Post-employment benefits 1,610,011 2,259,292 Total \ 18,142,620 \ 14,309,548

(7) Details of payment guarantees and collateral provided by the Group for the related parties as December 31, 2019 and 2018, are as follows:

2019 Guaranteed Credit entity Guaranteed by Guaranteed amount amount Maturity date

December 31, PSS Netherlands Thai Oil Public USD 499,479,134 - 2022 ~ August B.V Company Limited, etc. EUR 166,921,770 31, 2023 Payment guarantees THE BAHRAIN TTSJV W.L.L. PETROLEUM USD 1,347,520,000 - April 25, 2022 COMPANY (B.S.C.)

82 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

2018 Guaranteed Credit Maturity entity Guaranteed by Guaranteed amount amount date

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

83 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

30. Cash Generated from Operations

(1) Cash flows from operating activities for the years ended December 31, 2019 and 2018, consist of the following:

(In thousands of Korean won) 2019 2018

Adjustments for: Depreciation expenses \ 33,856,506 \ 31,904,587 Amortization expenses 28,039,137 28,429,209 Post-employment benefits 42,090,283 31,231,760 (Reversal of provision for) Impairment loss on receivables (362,462) 2,913,561 Impairment loss on other receivables 195,041 121,461 Loss on foreign currency translation 74,614,456 28,453,407 Loss on disposal of property, plant and equipment 2,426,031 8,498,529 Loss on disposal of intangible asset 102,245 4 Loss on disposal of trade receivable 10,050,529 9,063,829 Interest expense 15,824,803 41,761,082 Income tax expense 104,957,419 99,980,222 Loss on valuation of derivatives 29,052,397 12,087,188 Loss on valuation of firm commitment 11,434,211 9,323,458 Contribution to provision for construction warranties 14,346,503 2,052,891 (Reversal of provision for) Contribution to provision for contingencies 1,807,307 (4,642,258) Loss (Gain) on valuation of financial assets at fair value through profit or loss (64,330) 21,166,555 Reversal of provision for impairment on other receivables (1,570,270) (56,138) Share of loss of associates (32,166,812) (4,951,203) Gain on foreign currency translation (62,375,667) (29,447,884) Gain on disposal of property, plant and equipment (1,350,828) (4,313,097) Gain on disposal of intangible asset (299,273) - Interest income (10,394,914) (11,332,817) Dividend income (3,025,283) (2,502,583) Gain on valuation of derivatives (17,163,342) (7,433,562) Gain on valuation of firm commitment (48,230,695) (18,545,333) Reversal of provision for construction losses (43,059,563) (6,293,666) Reversal of provision for construction warranties (2,547,564) - Others 74,551 10,098,551 \ 146,260,416 \ 247,567,753

84 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(In thousands of Korean won) 2019 2018

Changes in assets and liabilities: Decrease (increase) in trade receivables \ 154,831,273 \ (198,979,436) Decrease (increase) in due from customers for contract work 259,093,760 135,848,229 Decrease (increase) in other receivables 74,321,909 (13,975,168) Decrease (increase) in other current assets (38,664,299) 6,303,860 Decrease (increase) in advanced payments (81,920,257) (52,144,558) Decrease (increase) in prepaid contract expenses 20,849,005 (15,801,111) Decrease (increase) in prepaid expenses 40,608,056 (76,998,513) Decrease (increase) in guarantee deposits provided 10,667,272 31,503,688 Decrease (increase) in long-term prepaid expenses - (223,446) Decrease (increase) in long-term other receivables 754,760 (227,127) Decrease (increase) in foreign currency forwards (14,388,885) (5,995,934) Decrease (increase) in firm commitment 25,196,218 9,200,934 Increase (decrease) in trade payables (97,158,610) 34,353,508 Increase (decrease) in other liabilities 14,113,100 (21,484,327) Increase (decrease) in due to customers for contract work 50,239,693 421,592,786 Increase (decrease) in deposits received 35,585,394 (14,879,081) Increase (decrease) in accrued expenses 23,082,344 43,371,179 Increase (decrease) in provisions (2,277,167) (1,126,457) Increase (decrease) in net defined benefit liabilities (76,690,350) (46,558,178)

\ 398,243,216 \ 233,780,848

85 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(2) Significant transactions not affecting cash flows for the years ended December 31, 2019 and 2018, are as follows: (In thousands of Korean won) 2019 2018

Changes in other receivables arising from disposal of property, plant and equipment \ 33,729 \ 396,731 Changes in other payables arising from acquisition of property, plant, and equipment 1,677,855 1,254,810 Changes in other payables arising from acquisition of intangible assets 2,123,329 2,771,911 Reclassification of long-term borrowings - 119,000,000 Reclassification of guarantee deposits received 28,419,172 - Reclassification of provisions for construction warranties 5,070,814 4,070,588 Write off of trade receivables - 51,708,972 Write off of guarantee deposit 10,401,815 20,107,480 Valuation of derivatives 6,762,126 32,202,093 Acquisition of lease assets 13,593,952 - Disposal of lease assets 4,628,507 -

(3) Cash inflows and outflows of which have short-term maturity because of frequent transactions, such as short-term financial instruments, short-term borrowings, and others have been presented in net amounts.

86 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(4) Changes in liabilities arising from financing activities

(In thousands of

Korean won) Liability from financing activities Current portion Current Currency Short-term of long-term portion of Long-term Lease Leasehold swap liability borrowing borrowing bonds borrowing Bonds liabilities deposits (asset) Total

At January 1, 2018 \928,885,963 \ 127,000,000 \ 121,000,000 \ 188,000,000 \ 80,000,000 \ - \ 1,765,384 \ 5,229,050 \ 1,451,880,397

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

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

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

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

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

At January 1, 2019 438,544,447 39,000,000 80,000,000 - - - 6,348,635 32,961 563,926,043

Changes in accounting policy - - - - - 35,009,848 - - 35,009,848

Restated total liabilities 438,544,447 39,000,000 80,000,000 - - 35,009,848 6,348,635 32,961 598,935,891

Cash flow (298,594,986) (39,000,000) (80,000,000) - - (6,874,117) (192,982) 2,424,000 (422,238,085)

Increase (decrease) in non-cash - - - - - 8,965,445 - - 8,965,445

Change in fair value and others 8,229,593 - - - - 971,435 28,283 (2,456,961) 6,772,350

At December 31, 2019 \148,179,054 \ - \ - \ - \ - \ 38,072,611 \ 6,183,936 \ - \ 192,435,601

31. Financial Risk Management

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

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

Moreover, the Group dispatches staffs for financial management to the specific area (Saudi, Malaysia, UAE and others) and operates regional financial center to manage global financial risk.

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

87 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(1) Market risk

1) Foreign exchange risk

In order to minimize currency risk arising from operating activities, the Group controls the occurrence of foreign exchange transactions by trading in local currency at the time of current transactions such as imports and exports, or by managing the foreign currency deposits and expenditures to match through funds planning. In addition, the Group calculates the bid amount at the appropriate exchange rate reflecting the cashflow characteristics of each project, and concludes forward contracts for the equipment expected to be ordered when the project is ordered, to minimize foreign exchange effect on project profit and loss.

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

The effect of foreign currency risk on pre-tax profit is a sum of net foreign currency fluctuations against Korean won. When currency rate changes by 5% against Korean won, foreign exchange risk of financial assets and liabilities is presented below.

(In millions of Korean won) 2019 2018 Increase Decrease Increase Decrease

Foreign financial assets \ 59,057 \ (59,057) \ 57,025 \ (57,025) Foreign financial liabilities (40,314) 40,314 (32,344) 32,344 Net effect \ 18,743 \ (18,743) \ 24,681 \ (24,681)

2) Price risk

The Group’s investment portfolio for strategic objectives consists of investments in listed and non-listed securities. The fair values for the Group’s securities in listed (excluding subsidiaries and joint ventures) for the years ended December 31, 2019 and 2018, are \ 3,366 million and \ 2,240 million, respectively.

When the market price of equity investments that are included in Level 1 changes by 1%, the amount of other comprehensive income changes (after considering deferred income tax) for the years ended December 31, 2019 and 2018, is \ 26 million and \ 17 million, respectively.

3) Interest rate risk

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

88 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

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

(In millions of Korean won) 2019 2018

Increase in interest rate \ 1,962 \ (1,690) Decrease in interest rate (1,962) 1,690

(2) Credit risk

Credit risk arises from ordinary courses of transactions and investing activities, where clients or other party fails to discharge an obligation. The Group monitors and evaluates counterparties’ credit rating periodically based on the counterparties’ financial conditions, historical experiences and other important factors. In order to avoid credit risk, the Group obtains letter of guarantee from banks that have appropriate credit rating.

Credit risk may arise from cash and cash equivalents, savings and derivative instrument transactions with financial institutions. To minimize such risk, the Group transacts only with banks that have great international credit rating, and all new transactions with financial institutions without prior transaction history are approved, managed and monitored by the Group’s business support division. The Group mainly makes financial contracts without debt-to-equity ratio, provision of collateral and redemption restrictions. The Group requires separate approval procedure for contracts with restrictions.

The Group’s maximum exposure amount to credit risk by providing payment guarantees and others as at December 31, 2019 and 2018, is equal to the amount of guarantees provided by the Group. Refer to Notes 29 and 33.

(3) Liquidity risk

The Group’s business requires a lot of costs, and therefore, maintaining adequate liquidity is important. To maintain adequate liquidity, the Group manages liquidity risk via periodic forecasting fund receipts and disbursements, estimation of required cash amount, and management of income and expenses.

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

Apart from it, the Group has overdraft limits to hedge against liquidity risk, and subsidiaries are also secured with borrowing limits through payment guarantees by the Group.

At the reporting date, liquidity analysis of financial liabilities and financial guarantee contracts according to contract maturity is presented below.

89 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(In millions of Korean won) 2019 More than Less than 6 months 1 year More than 6 months ~1 year ~2 years 2 years Total

Financial liabilities measured

at amortized cost \ 994,223 \ 47,104 \ 132,917 \ 4,569 \ 1,178,813 Financial guarantees(*1) 86,361 - - 4,922,322 5,008,683 Derivative instruments (*2) 18,040 7,894 5,607 688 32,229 Lease liabilities 5,367 4,834 7,177 24,105 41,483 Total \ 1,103,991 \ 59,832 \ 145,701 \ 4,951,684 \ 6,261,208

(*1) The amount of above financing guarantee contract is the maximum contractual payment that the Group is obliged to pay if the principal debtor claims the whole amount of guarantees. (*2) The amounts of derivative instruments are presented at undiscounted net cash flow.

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

Financial liabilities measured

at amortized cost \ 1,323,012 \ 211,199 \ 99,406 \ 4,569 \ 1,638,186 Financial guarantees(*1) 87,579 - - 4,761,426 4,849,005 Derivative instruments (*2) 6,633 9,875 12,645 2,984 32,137 Total \ 1,417,224 \ 221,074 \ 112,051 \ 4,768,979 \ 6,519,328

(*1) The amount of above financing guarantee contract is the maximum contractual payment that the Group is obliged to pay if the principal debtor claims the whole amount of guarantees. (*2) The amounts of derivative instruments are presented at undiscounted net cash flow.

(4) Capital risk management

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

To achieve optimal capital structure, the Group monitors financial ratios such as debt ratio, net borrowing ratio, and others and implements appropriate capital structure improvement plan if required. The Group received credit rating BBB+ from NICE Investors Service Co., Ltd. and others as at December 31, 2019.

90 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

The debt-to-equity ratios at December 31, 2019 and 2018, are as follows:

(In millions of Korean won and %) 2019 2018

Total debts \ 3,242,377 \ 3,594,743 Total equity 1,302,871 1,033,770 Debt-to-equity ratio 248.86% 347.73%

32. Segment Information

(1) The Group has two reportable operating segments which is classified by the nature of the engineering work. General information on segments of the Group as at December 31, 2019, is as follows:

Line Classification criteria Goods and services Major customers Saudi Arabian Oil Company, Oil refinery, Hydrocarbon SONATRACH Spa, Purpose of management Petrochemical, Gas, business Abu Dhabi Oil Refining Company Upstream, and others and others Samsung Electronics Co., Ltd., Electricity generation, Non-hydrocarbon Samsung Display, 〃 Water treatment business Saudi Arabian Oil Company and others and others

Financial information by segments as at and for the years ended December 31, 2019 and 2018, are as follows:

(In millions of Korean won) 2019 Hydrocarbon Non-hydrocarbon

business business Total

Sales \ 2,878,180 \ 3,489,800 \ 6,367,980 Gross profit 259,653 502,568 762,221 Depreciation 16,503 17,353 33,856 Amortization 8,456 19,583 28,039 Operating profit (loss) 43,804 341,672 385,476 Total assets 2,215,567 2,329,681 4,545,248

91 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

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

business business Total

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

(2) The goods and services, and major customers that generate revenue for each geographical area is as follows.

Geographical area Goods and services Major customers Oil refinery, petrochemical, Samsung Electronics Co., Ltd., Samsung Domestic industrial facilities, water Display Co., Ltd., Samsung Electro- treatment and others mechanics Co., Ltd. and others Oil refinery, gas, YPFB, Lotte chemical USA, InterGen, PEMEX America electricity generation and others and others Oil refinery, petrochemical, PRPC Polymers sdn. Bhd, PTT GLOBAL Asia industrial facilities, and others CHEMICAL and others Oil refinery, industrial facilities SONATRACH Spa, SOCAR, Nexen tire and Europe and Africa and others others Saudi Arabian Oil Company, Abu Dhabi Oil Oil refinery, gas, petrochemical, Refining Company, Jubail United Middle east and Others electricity generation, steel and Petrochemical Company, Duqm others Refinery&Petrochemical and others ` The sales by geographical area for the years ended December 31, 2019 and 2018, are as follows:

(In millions of Korean won) 2019 2018

Domestic \ 2,334,627 \ 2,321,088 America 89,014 187,138 Asia 1,729,995 1,559,366 Europe and Africa 311,042 520,254 Middle east and others 1,903,302 891,955

Total \ 6,367,980 \ 5,479,801

92 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(3) The major customers who account for more than 10% of the sales for the years ended December 31, 2019 and 2018, are as follows:

(In millions of Korean won) 2019 Sales Percentage Line of business

Major customers-1 \ 1,943,470 30.52% Non-hydrocarbon business Major customers-2 \ 1,006,602 15.81% Hydrocarbon business

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

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

33. Commitments and Contingencies

(1) Other Commitments and contingencies as at December 31, 2019

1) The Group has entered into comprehensive limit contracts with Kookmin Bank and the other, with a limit of USD 210 million. 2) The Group has entered into general term borrowing agreements with Woori Bank and three others, with a limit of \ 310,000 million. 3) The Group has entered into bank overdraft agreements with KEB Hana Bank and two others, with a limit of \ 6,000 million. 4) The Group has entered into agreements for trade receivables secured loans with Shinhan Bank and three others, with a limit of \ 44,360 million. 5) The Group has entered into agreements in relation to issuance of letter of credit with Shinhan Bank and the other, with a credit limit of USD 58.9 million. 6) The Group has entered into a factoring agreement with KEB Hana Bank, with limit of \ 30,000 million. 7) The Group has entered into credit ceiling agreements with CITI Bank and ten other financial institutions related to borrowings of Samsung Saudi Arabia and six other subsidiaries, with limit of USD 419,850,374, SAR 1,623,240,223, INR 2,040,000,000, MYR 51,000,000, and THB 850,000,000.

93 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(2) The Group has entered into foreign currency forward contracts to hedge the exposure to fluctuations in foreign exchange rates with Woori Bank and 11 others. Details of foreign currency forwards outstanding as at December 31, 2019, which were entered into with banks, are as follows:

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

Deutsche Bank GBP 4,100,000 USD 5,183,220 1.2642~1.2642 USD 11,478,067 EUR 9,878,990 1.1119~1.2113 USD 4,129,216 JPY 450,192,150 108.92~109.11

Nova Scotia Bank GBP 700,000 USD 886,760 1.2668~1.2668 KRW 18,313,219,268 USD 16,544,107 1089.30~1145.40 USD 41,386,074 EUR 36,228,933 1.1044~1.2120 USD 13,002,160 GBP 9,600,000 1.3521~1.3561 USD 611,814 JPY 65,000,000 105.89~106.26 USD 21,187,670 KRW 23,898,984,761 1037.70~1165.35

Standard Chartered Bank JPY 1,080,697,000 USD 10,244,545 105.49~105.49 KRW 125,587,127,027 USD 115,459,098 1052.70~1148.80 THB 10,657,152 EUR 317,319 33.59~33.59 USD 177,094,128 EUR 145,210,709 1.1184~1.3382 USD 6,420,050 JPY 685,853,061 100.54~108.62 USD 20,846,152 KRW 22,011,301,882 1027.31~1068.21 USD 4,675,376 MXN 93,434,416 19.0225~20.4165

NH Bank USD 58,300,962 KRW 67,757,872,062 1158.00~1188.36

Shinhan Bank USD 504,694 JPY 54,000,000 104.10~109.13 USD 74,164,974 KRW 79,392,897,270 1044.80~1163.65

Woori Bank KRW 34,688,366,981 USD 29,921,546 1111.60~1191.70 USD 39,379,602 EUR 34,021,345 1.1051~1.2206 USD 2,162,841 JPY 235,179,500 108.32~109.19 USD 121,697,965 KRW 132,179,670,333 999.74~1173.51

Korea Development Bank USD 7,875,734 EUR 6,475,650 1.1059~1.3660 USD 24,129,649 JPY 2,453,598,000 100.39~101.94 USD 28,322,104 KRW 29,077,254,760 997.80~1047.58

BNP Paribas JPY 124,634,001 USD 1,190,392 104.70~104.70 KRW 5,209,110,646 USD 4,525,164 1149.60~1152.80

94 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

USD 16,085,935 KRW 17,849,884,270 1071.41~1195.70

SOCIETE GENERALE KRW 11,540,151,920 USD 10,543,384 1072.90~1150.78 USD 7,315,706 EUR 6,402,877 1.1056~1.2412

CREDIT AGRICOLE CIB KRW 32,717,984,879 USD 28,655,749 1120.51~1152.90

HONGKONG AND SHANGHAI

BANKING CORPORATION KRW 3,196,526,275 USD 2,724,049 1167.00~1181.50

United Overseas Bank KRW 7,432,523,683 USD 6,182,753 1200.53~1203.63

Gain or loss on of foreign currency forwards and firm commitment for the years ended December 31, 2019 and 2018, is as follows:

(In thousands of 2019

Korean won) Trading Cash flow hedge Firm commitment

Gain (loss) on Firm Asset (liability) Other valuation of commitment regarding Gain on Loss on Gain on Loss on comprehens- firm assets derivatives valuation valuation valuation valuation ive income commitment (liabilities) contract

Foreign currency forwards \ 16,538,723 \ (17,733,224) \ 624,619 \ (11,319,173) \ 5,089,337 \ 36,796,485 \ 17,001,889 \ (32,228,757) Foreign currency swap - - - - 36,355 - - -

\ 16,538,723 \ (17,733,224) \ 624,619 \ (11,319,173) \ 5,125,692 \ 36,796,485 \ 17,001,889 \ (32,228,757)

(In thousands of 2018

Korean won) Trading Cash flow hedge Firm commitment

Gain (loss) on Firm Asset (liability) Other valuation of commitment regarding Gain on Loss on Gain on Loss on comprehens- firm assets derivatives valuation valuation valuation valuation ive income commitment (liabilities) contract

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

Interest rate swap - - - - 95,957 - - - Foreign currency swap - - 15,000 - 36,413 - - (32,961)

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

95 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

Gain or loss on valuation of foreign currency forwards for hedging purpose recognized in accumulated other comprehensive income for the years ended December 31, 2019 and 2018, are as follows:

(In thousands of Korean won) 2019 January 1, Reflected in December 31,

2019 profit and loss Valuation 2019 Foreign currency forwards: Gain (loss) on valuation of

derivatives for hedging purpose \ (16,166,176) \ 12,887,767 \ (6,173,602) \ (9,452,011) Effect of income tax 3,985,728 (3,118,840) 1,494,012 2,360,900 Allocated to accumulated other

comprehensive income (12,180,448) 9,768,927 (4,679,590) (7,091,111) Foreign currency swap: Gain (loss) on valuation of

derivatives for hedging purpose (47,961) 47,961 - - Effect of income tax 11,606 (11,606) - - Allocated to accumulated other

comprehensive income (36,355) 36,355 - -

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

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

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

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

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

comprehensive income (95,957) 95,957 - - Foreign currency swap: Gain (loss) on valuation of

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

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

In relation to derivative contracts held for cash flow hedging, the expected maximum period to be exposed to cash flow fluctuation risk is until February 18, 2021. The expected amount of gain and loss on valuation of derivatives, to be transferred to profit or loss from accumulated other comprehensive income due to reasons such as maturity within 12 months from December 31, 2019, is ￦ 8,483,702 thousand. This amount is calculated with the consideration of deferred income tax charged on equity.

96 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

(3) Litigation

As at December 31, 2019, the Group is involved in 56 lawsuits as a defendant related to compensation for damages and others amounting to ￦ 43.29 billion, and involved in 11 lawsuits as a plaintiff related to compensation for damages and others amounting to ￦ 35.87 billion.

The Group is involved in arbitration cases on Saudi Yanbu project (petitioner: ALTOUKHI, VISION) amounting to ￦ 723.2 billion and five other cases.

The effects of outcome of these cases on the Group’s financial statements cannot be reasonably determined. Meanwhile, the Group recognized provisions amounting to ￦ 2 billion related to the litigation.

(4) As at December 31, 2019, the Group’s land and building amounting to ￦ 6,016,792 thousand have been provided as collateral for the leasehold deposits with KEB Hana Bank and others.

(5) As at December 31, 2019, Cheonan eco-energy of ‘Investments in Associate and Joint Venture’ and Asan Smart Water securities of ‘Financial assets measured at fair value through other comprehensive income’ have been provided as a collateral for project financing.

(6) As at December 31, 2019, the Group has been provided with guarantees in the amount of ￦ 2,286,454 million in relation to the construction contract performance and warranties from the Export- Import Bank of Korea. And the Group has been provided with guarantees in the amount of ￦ 946,755 million in relation to advances received, reserves and refunds from UOB Bank. In addition, the Group has been provided with guarantees in the amount of ￦ 1,043,553 million in regard to the bids and others from Credit Agricole Bank and others.

(7) Among financial assets measured at fair value through profit or loss, contributions to Construction Guarantee amounting to ￦ 6,901 million is provided as collateral for performance guarantee agreements offered by the Construction Guarantee.

(8) In relation to fulfilling construction contracts, the Group maintains insurance policies from SAMSUNG FIRE & MARINE INSURANCE CO., LTD for the performance of its construction work for up to ￦ 2,784,150 million and its cargos for up to ￦ 1,946,408 million.

(9) The Group provides construction performance and other guarantees to Petrofac International (UAE) LLC and four other companies with a limit of USD 1,750,804,667, EUR 416,373,480 and KRW 87,220,317,910 (Refer to Note 29).

97 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

34. Changes in Accounting Policies

As explained in Note 2.2.(1), the Group has adopted Korean IFRS 1116, retrospectively, from January 1, 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are, therefore, recognized in the consolidated statement of financial position on January 1, 2019.

(1) Adjustments recognized on adoption of Korean IFRS 1116 Lease

On adoption of Korean IFRS 1116, the Group recognized lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of Korean IFRS 1017. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as at January 1, 2019. The lessee’s weighted average incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 4.17%.

(In millions of Korean won) 2019

Operating lease commitments disclosed as at December 31, 2018 \ 125,380 Discounted using the lessee’s incremental borrowing rate of at the date of

initial application 120,663 Less: short-term leases recognized on a straight-line basis as expense (76,877) Less: low-value leases recognized on a straight-line basis as expense (794) Less: contracts reassessed as service agreements (7,982) Lease liability recognized as at January 1, 2019 35,010 Of which are: Current lease liabilities 7,277 Non-current lease liabilities 27,733 \ 35,010

Right-of use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the statement of financial position as at December 31, 2018. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.

98 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

1) Amounts recognized in the statement of financial position

The statement of financial position shows the following amounts relating to leases:

(In millions of Korean won) December 31, 2019 January 1, 2019

Right-of-use assets(*1)

Land \ 153 \ 16

Buildings 31,835 33,461

Machinery 105 -

Vehicles 4,411 1,533

\ 36,504 \ 35,010

(*1) Included in the ‘Property, plant and equipment’ in the statements of financial position.

(In millions of Korean won) December 31, 2019 January 1, 2019

Lease liabilities(*1)

Current \ 8,424 \ 7,277

Non-current 29,648 27,733

\ 38,072 \ 35,010

(*1) Included in the ‘Other liabilities’ in the statements of financial positon.

Right-of-use assets have increased by \ 13,594 million during reporting period.

99 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

2) Amounts recognized in the statement of profit or loss

The statement of profit or loss shows the following amounts relating to leases:

(in millions of Korean won) 2019

Depreciation of right-of-use assets

Land \ 31

Buildings 5,813

Machinery 10

Vehicles 1,595

Total \ 7,449 Interest expense relating to lease liabilities (included in finance cost) \ 1,427 Expense relating to short-term leases (included in cost of goods sold and administrative expenses) 41,911 Expense relating to leases of low-value assets that are not short-term leases (included in cost of goods sold and administrative expenses) 966

The total cash outflow for leases in 2019 was \ 51,178 million during reporting period.

The change in accounting policy affected the following items in the statement of financial position on January 1, 2019:

 right-of-use assets: increase by \ 35,010 million

 lease liabilities: increase by \ 35,010 million

3) Practical expedients applied

In applying Korean IFRS 1116 for the first time, the Group has used the following practical expedients permitted by the standard:

 the use of a single discount rate to a portfolio of leases with reasonably similar characteristics

 reliance on previous assessments on whether leases are onerous

 the accounting for operating leases with a remaining lease term of less than 12 months as at January 1, 2019, as short-term leases

 the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application, and

 the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease

100 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date, the Group relied on its assessment made applying Korean IFRS 1017 and Interpretation 2104 Determining whether an Arrangement contains a Lease.

(2) The Group’s leasing activities and how these are accounted for

The Group leases various offices, cars, and others. Lease contracts are typically made for fixed periods but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.

Until the 2018 financial year, leases of property, plant and equipment were classified as either finance or operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

From January 1, 2019, leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and interest expense. The interest expense is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

 Fixed payments (including in-substance fixed payments), less any lease incentives receivable

 Variable lease payment that are based on an index or a rate

 Amounts expected to be payable by the lessee under residual value guarantees

 The exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and

 Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option

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

101 Samsung Engineering Co., Ltd. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2019 and 2018

Right-of-use assets are measured at cost comprising the following:

 the amount of the initial measurement of lease liability

 any lease payments made at or before the commencement date less any lease incentives received

 any initial direct costs, and

 restoration costs Payments associated with short-term leases and leases of low-value assets are recognized on a straight- line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office furniture and fixtures.

102