HYUNDAI ENGINEERING CO., LTD. Separate Financial ......We have audited the separate financial...

HYUNDAI ENGINEERING CO., LTD. Separate Financial Statements December 31, 2018

(With Independent Auditors’ Report Thereon)

Contents Page Independent Auditors’ Report 1 Separate Statements of Financial Position 6 Separate Statements of Comprehensive Income 10 Separate Statements of Changes in Equity 12 Separate Statements of Cash Flows 14 Notes to the Separate Financial Statements 18 Independent Auditors’ Review Report on Internal Accounting Control System 97 Report on Operational status of Internal Accounting Control System 98

KPMG SAMJONG Accounting Corp. Tel +82 (2) 2112 0100

152, Teheran-ro, Gangnam-gu, Seoul 06236 Fax +82 (2) 2112 0101 Republic of Korea www.kr.kpmg.com

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Independent Auditors’ Report

Based on a report originally issued in Korean The Board of Directors and Shareholders HYUNDAI ENGINEERING CO., LTD.:

Opinion

We have audited the separate financial statements of HYUNDAI ENGINEERING CO., LTD (the “Company”), which comprise the separate statements of financial position as of December 31, 2018, the separate statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information. In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of the Company as of December 31, 2018, and its separate financial performance and its separate cash flows for the year then ended in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing (KSAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Separate Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the separate financial statements in the Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters related to industry with production-to-order transactions

Pursuant to “Practical Guide to Korean Standards on Auditing 2016-1(amended in 2018)”, Key audit matters related to entities engaged in production-to-order transactions are those matters that, in our professional judgment and communication with those charged with governance, were of most significance in our audit of the separate financial statements as of and for the year ended December 31, 2018. These matters were addressed in the context of the audit of the separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We have considered the result of the audit procedures for the following key audit matters in forming our audit opinion on the separate financial statements of the Company.

A. General Information

Information relevant to the key audit matters related to the industry with in production-to-order transactions described in our audit report are as follows:

As explained in the Note 2 to the separate financial statements, the Company recognizes contract revenue and contract costs as revenue and expense, respectively, based on the percentage of completion at the end of the

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reporting period in accordance with K-IFRS 1115 ‘Revenue from Contracts with Customers’ when the outcome of a performance obligation can be reliably estimated. The percentage of completion is calculated based on the ratio of contract costs incurred to date to estimated total costs, excluding costs incurred that do not reflect the progress of completion. Due from customers is the amount of the costs incurred plus recognized profits (less recognized losses) in excess of progress billings to customers. Due to customers is the amount of progress billings to customers in excess of the costs incurred plus recognized profits (less recognized losses). However, if the Company is not able to reasonably estimate the outcome of a performance obligation, the Company recognizes revenue only to the extent of the costs incurred that are likely to be recoverable. B. Revenue recognition based on the input method As 89% of total revenue is based on the input method, the Company is exposed to a risk of material misstatement of contract revenue if the method to measure the stage of completion does not reliably measure the work performed. As explained in Note 21 to the separate financial statements, changes in estimated total contract revenue and contract costs amount to W424,865 million and W203,995 million, respectively, for the year ended December 31, 2018. Due to such changes, the profit for the year ended December 31, 2018 has increased by W173,612 million, and the future profit or loss is estimated to increase by W47,258 million. If uncertainty in estimation increase the changes in total expected contract revenue and costs may have an negative impact on the profit or loss for the current year. Therefore, we have identified revenue recognition based on the input method as a key audit matter. We have performed the following audit procedures regarding the revenue recognized by the input method for the year ended December 31, 2018.

① Reviewed the Company’s accounting policy for revenue recognition whether it is in conformity with the relevant accounting standard.

② Reviewed the accounting policy for revenue recognition applied to major projects to assess whether the accounting policy applied conforms with the relevant accounting standard.

③ Inquired of and performed analytical review on the progress and significant changes for major projects.

④ Performed analytical review on major financial indicators including contracts amount and estimated cost as well as cost ratio, ratio of dues from customers for contract work.

⑤ Inquired of any contract modifications in major projects and reviewed the contracts for new projects. C. Uncertainty of estimated total contract costs As described in the Note 3 to the separate financial statements, total contract costs are estimated based on future estimates of material costs, labor costs, construction period and others. Considering increasing uncertainties of construction contracts due to factors such as long-term construction periods, modification to work, changes in construction environment, fluctuation in material costs and others, we have identified uncertainty of estimated total contract costs as a Key audit matter. We have performed the following audit procedures regarding the impact of uncertainty in the Company’s estimated total contract costs in the separate financial statements for the year ended December 31, 2018.

① Compared total contract costs by reporting periods and inquired of constructions with significant changes.

② For constructions completed in the current year, compared the accumulated costs incurred with the estimated total contract costs to identify any significant changes and inspected supporting documents, if necessary.

③ Inspected whether review and approval was obtained from proper authorized person for changes in estimated total contract costs for selected samples.

④ Inquired of any construction delays in projects and whether such change has been reflected estimated total contract costs and inspected supporting documents, if necessary.

⑤ Assessed the reliability of estimated total contract costs for two overseas construction sites by using an external expert in industries with in production-to-order transactions.

⑥ Performed site visits for ten overseas construction sites and nine domestic construction sites.

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D. Measuring progress of construction projects As described in Note 21 to the separate financial statement, changes in estimated total contract costs amount to W203,995 million for the year ended December 31, 2018. As there is uncertainty in the estimation of total contract costs, we have identified measurement of percentage of completion as a key audit matter. We have performed the following audit procedures regarding estimated total contract costs and accumulated costs incurred that impact the measurement of percentage of completion.

① Recalculated the percentage of completion of the Company.

② Identified any significant difference between the progress reported to the customer and the percentage of completion used for accounting purpose and obtained relevant evidence, if necessary.

③ Tested the existence and the cut off of costs incurred and allocation of costs incurred to the each project.

④ Assessed the accuracy of contract costs data for each construction contracts by using our internal IT audit team.

- Examined the reasons for costs incurred before the contract date for new construction projects commenced during the year.

- Examined the sub-ledger such as costs of sales to identify journal entries of costs transferred between projects with the same amount in debit and credit.

E. Collectability of due from customers Due from customers is the amount of the costs incurred plus recognized profits (less recognized losses) in excess of progress billings to customers and due to customers is the amount of progress billings to customers in excess of the costs incurred plus recognized profits (less recognized losses). Due from customers is a significant account as it comprises 8.7% of the total assets and is used as a key indicator when assessing the financial soundness in the construction industry. We have identified collectability of due from customers as a key audit matter as there is a risk of misstatement in assets if the due from customers is not recoverable. We have performed the following audit procedure regarding the collectability of due from customers.

① Assessed reasons for increase in due from customers and its collectability.

② Inquired of payment terms of major construction projects and examined the respective contracts.

③ Inquired the existence of any long-term due from customers, the schedule for transferring to accounts receivable and billing schedule.

F. Accounting for the variation of construction contracts As described in Note 3 to the separate financial statements, the Company measures total contract revenue at the initial amount of revenue agreed in the contract. However, the measurement of revenue from the contract is may be impacted by a number of uncertainties of future events due to the increase in total contract revenue by contract modifications, claims and incentive payments or the decrease in total contract revenue by penalties arising from delays caused by the Company. Variations are included in the contract revenue when it is probable that the customer will approve the variation or the Company expects to meet the specified performance standards and the amount of revenue could be reliably measured. We have identified the accounting for variations as a key audit matter considering the variations occurred during the year ended December 31, 2018. We have performed the following audit procedures regarding the accounting and disclosure requirements for variations.

① Inquired of the Company's accounting policy related to the recognition of variations and penalties for delays.

② Examined whether the proper authorized person reviewed and approved the contract modifications for selected samples.

③ Inspected supporting documents for construction projects with significant changes in the contract amounts.

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④ Inquired of any projects probable to be delayed and subject to penalties and inspected supporting documents, if necessary.

⑤ Examined whether the variations were reflected in the estimated total contract costs and calculation of the percentage of completion.

Other Matter

The separate financial statements of the Company for the year ended December 31, 2017 were audited by another auditor who expressed an unmodified opinion on those statements on March 22, 2018. The accompanying separate financial statements as of and for the years ended December 31, 2018 and 2017 have been translated into United States dollars solely for the convenience of the reader. We have audited the translation and, in our opinion, the separate financial statements expressed in Korean won have been translated into dollars on the basis set forth in note 30 to the separate financial statements. The procedures and practices utilized in the Republic of Korea to audit such separate financial statements may differ from those generally accepted and applied in other countries.

Responsibilities of Management and Those Charged with Governance for the Separate Financial Statements

Management is responsible for the preparation and fair presentation of the separate financial statements in accordance with K-IFRS, and for such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error. In preparing the separate financial statements, management is responsible for assessing the Company’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 Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Separate Financial Statements

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

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

• Identify and assess the risks of material misstatement of the separate 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 Company’s internal control.

• Evaluate the appropriateness of accounting policies used in the preparation of the separate financial

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statements and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and,

based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the separate financial statements, including

the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

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

KPMG Samjong Accounting Corp. Seoul, Korea March 4, 2019

This report is effective as of March 4, 2019, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

HYUNDAI ENGINEERING CO., LTD. Separate Statements of Financial Position As of December 31, 2018 and 2017

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(In thousands of won) Note 2018 2017

Assets

Current assets

Cash and cash equivalents 4,5,29 W 390,072,209 621,736,763

Short-term financial instruments 4,9,26,29 1,730,472,170 1,200,513,618

Trade receivables 4,6,21,27,29 814,544,833 985,374,250

Due from customers for contract work 6,21,27 517,454,247 355,561,214

Other receivables 4,6,27,29 229,901,976 177,067,055

Inventories 7 352,049,659 394,969,387

Other current assets 8 456,981,990 368,661,761

4,491,477,084 4,103,884,048

Non-current assets

Long-term financial instruments 4,9,26,29 1,351,405 585,098,000

Available-for-sale financial assets 4,10,26,29 - 45,225,856

Financial assets at FVPL 4,10,26,29 30,903,442 -

Financial assets at FVOCI 4,10,26,29 34,740,852 -

Investments in subsidiaries and associates 11,26 31,326,032 37,131,915

Long-term other receivables 4,6,21,27,29 538,089,774 455,353,092

Property, plant and equipment 12,20 41,456,823 52,834,429

Investment properties 13 34,575,496 24,124,013

Intangible assets 14 625,375,329 662,676,343

Deferred tax assets 25 117,308,983 95,660,392

1,455,128,136 1,958,104,040

Total assets W 5,946,605,220 6,061,988,088

HYUNDAI ENGINEERING CO., LTD. Separate Statements of Financial Position, Continued As of December 31, 2018 and 2017

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(In thousands of won) Note 2018 2017

Liabilities

Current liabilities

Trade payables 4,27,29 W 837,181,259 843,338,452

Other payables 4,15,27,29 143,892,652 119,970,648

Advances received 21 409,607,646 450,240,236

Due to customers for contract work 21,27 612,017,666 789,178,439

Current portion of long-term liabilities 4,16,27,29 99,934,016 -

Current income tax liabilities 27,839,071 70,848,848

Other current liabilities 15 8,852,897 13,278,242

Current portion of provision 21 48,157,980 - Current portion of financial guarantee liabilities 4,29 719,875 771,802

2,188,203,062 2,287,626,667

Non-current liabilities

Debentures 4,16, 26,29 199,708,384 299,419,420

Long-term other payables 4,15,29 56,397,430 53,730,501

Net defined benefit liabilities 17,27 11,310,416 547,133

Provision for long-term employee benefits 17 8,995,536 7,737,044

Provision for other liabilities and charges 21 132,215,664 107,415,494

Financial guarantee liabilities 4,29 28,457,552 25,951,673

437,084,982 494,801,265

Total liabilities 2,625,288,044 2,782,427,932

Equity

Share capital 18 37,976,705 37,976,705

Other paid-in capital 18 1,277,410,655 1,277,410,655

Other components of equity 18 73,880,944 138,605,510

Retained earnings 19 1,932,048,872 1,825,567,286

Total equity 3,321,317,176 3,279,560,156

Total liabilities and equity W 5,946,605,220 6,061,988,088 See accompanying notes to the Separate Financial Statements.


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(In thousands of US dollar (Note 30)) Note 2018 2017

Assets

Current assets

Cash and cash equivalents 4,5,29 $ 348,871 556,065

Short-term financial instruments 4,9,26,29 1,547,690 1,073,709

Trade receivables 4,6,21,27,29 728,508 881,293

Due from customers for contract work 6,21,27 462,798 318,005

Other receivables 4,6,27,29 205,618 158,364

Inventories 7 314,864 353,251

Other current assets 8 408,713 329,722

4,017,062 3,670,409

Non-current assets

Long-term financial instruments 4,9,26,29 1,209 523,297

Available-for-sale financial assets 4,10,26,29 - 40,449

Financial assets at FVPL 4,10,26,29 27,639 -

Financial assets at FVOCI 4,10,26,29 31,071 -

Investments in subsidiaries and associates 11,26 28,017 33,210

Long-term other receivables 4,6,21,27 481,254 407,256

Property, plant and equipment 12,20 37,077 47,252

Investment properties 13 30,923 21,576

Intangible assets 14 559,320 592,681

Deferred tax assets 25 104,918 85,556

1,301,428 1,751,277

Total assets $ 5,318,490 5,421,686


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(In thousands of US dollar (Note 30)) Note 2018 2017

Liabilities

Current liabilities

Trade payables 4,27,29 $ 748,753 754,260

Other payables 4,15,27,29 128,694 107,299

Advances received 21 366,343 402,683

Due to customers for contract work 21,27 547,373 705,821

Current portion of long-term liabilities 4,16,26,29 89,378 -

Current income tax liabilities 24,899 63,365

Other current liabilities 15 7,918 11,876

Current portion of provision 21 43,071 - Current portion of financial guarantee liabilities 4,29 644 690

1,957,073 2,045,994

Non-current liabilities

Debentures 4,16, 26,29 178,614 267,793

Long-term other payables 4,15,29 50,440 48,055

Net defined benefit liabilities 17,27 10,116 489

Provision for long-term employee benefits 17 8,045 6,920

Provision for other liabilities and charges 21 118,250 96,070

Financial guarantee liabilities 4,29 25,452 23,211

390,917 442,538

Total liabilities 2,347,990 2,488,532

Equity

Share capital 18 33,965 33,965

Other paid-in capital 18 1,142,483 1,142,483

Other components of equity 18 66,077 123,965

Retained earnings 19 1,727,975 1,632,741

Total equity 2,970,500 2,933,154

Total liabilities and equity $ 5,318,490 5,421,686 See accompanying notes to the Separate Financial Statements. The U.S. dollars figures are provided for the convenience of the readers and do not form part of the Separate Financial Statements. Refer to Note 30.

HYUNDAI ENGINEERING CO., LTD. Separate Statements of Comprehensive Income For the years ended December 31, 2018 and 2017

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(In thousands of won)

Note

2018 2017

Sales 21,22,27 W 5,406,303,935 5,774,825,136

Cost of Sales 22,27 (4,627,648,078) (4,948,550,866)

Gross profit 20 778,655,857 826,274,270

Selling and administrative expenses 22 (327,586,313) (338,643,983)

Operation profit 451,069,544 487,630,287

Other income 23 73,597,211 92,296,770

Other expenses 23,27 (110,287,856) (213,330,756)

Financial income 24 85,402,914 90,934,814

Financial costs 24 (31,958,743) (76,351,057)

Profit before income tax 467,823,070 381,180,058

Income tax expense 25 (206,975,897) (108,644,795)

Profit for the year W 260,847,173 272,535,263

Other comprehensive income (loss) Items not to be reclassified to profit or loss Remeasurements of net defined benefit liabilities (15,117,787) 14,686,922 Change in the fair value of financial assets at FVOCI 2,916,407 -

Items that may be subsequently reclassified to profit or loss Change in the fair value of available-for-sale financial assets - 246,871

Currency translation differences (66,268,877) 106,149,154 Other comprehensive income (loss) for the year, net of tax (78,470,257) 121,082,947

Total comprehensive income for the year W 182,376,916 393,618,210

See accompanying notes to the Separate Financial Statements.

HYUNDAI ENGINEERING CO., LTD. Separate Statements of Comprehensive Income, Continued For the years ended December 31, 2018 and 2017

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(In thousands of US dollar (Note 30))

Note

2018 2017

Sales 21,22,27 $ 4,913,973 5,248,934

Cost of Sales 22,27 (4,206,226) (4,497,906)

Gross profit 20 707,747 751,028

Selling and administrative expenses 22 (297,754) (307,805)

Operation profit 409,993 443,223

Other income 23 66,895 83,892

Other expenses 23,27 (100,244) (193,904)

Financial income 24 77,626 82,654

Financial costs 24 (29,048) (69,398)

Profit before income tax 425,222 346,467

Income tax expense 25 (188,127) (98,751)

Profit for the year $ 237,095 247,716

Other comprehensive income (loss) Items not to be reclassified to profit or loss Remeasurements of net defined benefit liabilities (13,741) 13,349 Change in the fair value of financial assets at FVOCI 2,651 -

Items that may be subsequently reclassified to profit or loss Change in the fair value of available-for-sale financial assets - 224

Currency translation differences (60,234) 96,483 Other comprehensive income (loss) for the year, net of tax (71,324) 110,056

Total comprehensive income for the year $ 165,771 357,772

See accompanying notes to the Separate Financial Statements. The U.S. dollars figures are provided for the convenience of the readers and do not form part of the Separate Financial Statements. Refer to Note 30.

HYUNDAI ENGINEERING CO., LTD. Separate Statements of Changes in Equity For the years ended December 31, 2018 and 2017

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Capital -Stock

Other paid in Capital

Other components

of equity

Retained earnings Total

Balance at January 1, 2017 W 37,976,705 1,287,494,146 32,209,485 1,625,309,173 2,982,989,509 Total comprehensive income

Profit for the year - - - 272,535,263 272,535,263 Change in fair value of available-for-sale financial assets - - 246,871 - 246,871

Remeasurements of net defined benefit liabilities - - - 14,686,922 14,686,922

Currency translation differences - - 106,149,154 - 106,149,154

Transaction with owners Dividends to equity holders of the Company - - - (86,964,072) (86,964,072)

Acquisition of treasury shares - (10,083,491) - - (10,083,491)

Balance at December 31, 2017 W 37,976,705 1,277,410,655 138,605,510 1,825,567,286 3,279,560,156

Adjustment on initial application of new accounting standards (No.1109, No.1115) - - (1,372,096) (52,283,728) (53,655,824)

Balance at January 1, 2018 W 37,976,705 1,277,410,655 137,233,414 1,773,283,558 3,225,904,332 Total comprehensive income (loss)

Profit for the year - - - 260,847,173 260,847,173 Change in the fair value of financial assets at FVOCI - - 2,916,407 - 2,916,407

Remeasurements of net defined benefit liabilities - - - (15,117,787) (15,117,787)

Currency translation differences - - (66,268,877) - (66,268,877)

Transactions with owners Dividends to equity holders of the Company - - - (86,964,072) (86,964,072)

Balance at December 31, 2018 W 37,976,705 1,277,410,655 73,880,944 1,932,048,872 3,321,317,176

See accompanying notes to the Separate Financial Statements.

HYUNDAI ENGINEERING CO., LTD. Separate Statements of Changes in Equity, Continued For the years ended December 31, 2018 and 2017

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(In thousands of US dollar (Note 30))

Share

Capital Other paid in Capital

Other components

of equity

Retained earnings Total

Balance at January 1, 2017 $ 33,965 1,151,502 28,807 1,453,635 2,667,909 Total comprehensive income

Profit for the year - - - 243,749 243,749 Change in fair value of available-for-sale financial assets - - 221 - 221

Remeasurements of net defined benefit liabilities - - - 13,135 13,135

Currency translation differences - - 94,937 - 94,937

Transaction with owners - - - - - Dividends to equity holders of the Company - - - (77,778) (77,778)

Acquisition of treasury shares - (9,019) - - (9,019)

Balance at December 31, 2017 $ 33,965 1,142,483 123,965 1,632,741 2,933,154

Adjustment on initial application of new accounting standards (No.1109, No.1115) - - (1,227) (46,761) (47,988)

Balance at January 1, 2018 $ 33,965 1,142,483 122,738 1,585,980 2,885,166 Total comprehensive income (loss)

Profit for the year - - - 233,295 233,295 Change in the fair value of financial assets at FVOCI - - 2,608 - 2,608

Remeasurements of net defined benefit liabilities - - - (13,521) (13,521)

Currency translation differences - - (59,269) - (59,269)

Transactions with owners - - - - - Dividends to equity holders of the Company - - - (77,779) (77,779)

Balance at December 31, 2018 $ 33,965 1,142,483 66,077 1,727,975 2,970,500

See accompanying notes to the Separate Financial Statements. The U.S. dollars figures are provided for the convenience of the readers and do not form part of the Separate Financial Statements. Refer to Note 30.

HYUNDAI ENGINEERING CO., LTD. Separate Statements of Cash Flows For the years ended December 31, 2018 and 2017

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(In thousands of won) Note

2018

2017

Cash flows from operation activities

Profit for the year W 260,847,173 272,535,263

Expenses not involving cash outflows 28 458,978,954 497,757,281

Income not involving cash inflows 28 (137,938,472) (140,234,581)

Changes in operation assets and liabilities (529,291,644) 205,650,856

Decrease in trade receivables 167,239,245 267,558,115 Decrease (increase) in due from customers for contract work (296,902,165) 514,106,313

Decrease (increase) in other receivables (396,685) 49,895,898

Decrease in inventories 42,370,498 46,130,173

Increase in other current assets (146,135,002) (115,821,170)

Increase in long-term other receivables (82,474,188) (106,429,160)

Decrease in trade payables (5,032,700) (306,825,950)

Increase (decrease) in other payables 16,422,900 (41,809,728)

Decrease in advance received (16,878,677) (282,462,607) Increase (decrease) in due to customers for contract work (146,655,066) 264,281,798

Decrease in other current liabilities (5,924,527) (26,262,179)

Increases (decrease) in long-term other payables 1,120,298 (4,406,320)

Decrease in defined benefit obligations (19,078,491) (24,247,800)

Decrease in plan assets (19,594,098) (7,570,173) Decrease in provisions for long-term employee benefits (710,465) (683,280)

Decrease in provisions (16,662,521) (19,803,074)

Cash generated from operations 52,596,011 835,708,819

Interest received 49,038,489 32,595,062

Dividends received 14,882,765 28,934,439

Interest paid (7,897,641) (9,547,899)

Income tax paid (246,752,120) (156,768,500)

Net cash provided by (used in) operating activities W (138,132,496) 730,921,921

HYUNDAI ENGINEERING CO., LTD. Separate Statements of Cash Flows, Continued For the years ended December 31, 2018 and 2017

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(In thousands of won) Note

2018

2017

Cash flows from investing activities

Decrease in short-term financial instruments W 1,266,245,000 1,679,100,000

Decrease in long-term financial instruments 195,000,000 105,000,000 Proceeds from disposal of available-for-sale financial assets

- 129,177

Proceeds from disposal of investments in subsidiaries and associates

70,715 6,868,736

Decrease in other receivables 107,888,297 4,200,000

Decrease in long-term other receivables 2,342,157 4,000,000

Proceeds from disposal of property and equipment 815,402 1,574,474

Proceeds from disposal of intangible assets 3,887,208 -

Proceeds from disposal of investment properties 2,395,000 6,999,000

Increase in short-term financial instruments (666,567,837) (1,385,845,000)

Increase in long-term financial instruments (741,339,405) (795,078,627)

Purchases of available-for-sale financial assets - (9,926,370)

Purchases of financial assets at FVOCI (5,962,269) -

Purchases of financial assets at FVPL (4,670,440) - Purchases of investments in subsidiaries and associates

(11,828,329) (23,742,307)

Increase in other receivables (136,772,446) (6,111,535)

Increase in long-term other receivables (1,005,409) (5,486,975)

Purchases of property and equipment (6,804,092) (13,234,332)

Purchases of intangible assets (2,320,045) (2,131,185)

Purchases of investment properties (10,495,000) (3,426)

Net cash used in investing activities (9,121,493) (433,688,370)

Cash flow from financing activities

Payment of dividends (86,963,666) (86,963,666)

Repayment of current portion of long term liabilities - (100,000,000)

Net cash used in financing activities (86,963,666) (186,963,666)

Net increase(decrease) in cash and cash equivalents (234,217,655) 110,269,885

Cash and cash equivalents at the beginning 621,736,763 546,676,109 Effects of exchange rate changes on cash and cash equivalents

2,553,101 (35,209,231)

Cash and cash equivalents at the end of the period W 390,072,209 621,736,763 See accompanying notes to the Separate Financial Statements.


16

(In thousands of US dollar (Note 30)) Note

2018

2017

Cash flows from operation activities

Profit for the year $ 233,295 243,749

Expenses not involving cash outflows 28 410,499 445,181

Income not involving cash inflows 28 (123,369) (125,422)

Changes in operation assets and liabilities (473,386) 183,930

Decrease in trade receivables 149,574 239,297 Decrease (increase) in due from customers for contract work (265,542) 459,804

Decrease (increase) in other receivables (355) 44,626

Decrease in inventories 37,895 41,258

Increase in other current assets (130,699) (103,587)

Increase in long-term other receivables (73,763) (95,188)

Decrease in trade payables (4,501) (274,417)

Increase (decrease) in other payables 14,688 (37,394)

Decrease in advance received (15,096) (252,627) Increase (decrease) in due to customers for contract work (131,165) 236,367

Decrease in other current liabilities (5,299) (23,488)

Increases (decrease) in long-term other payables 1,002 (3,941)

Decrease in defined benefit obligations (17,063) (21,687)

Decrease in plan assets (17,524) (6,771) Decrease in provisions for long-term employee benefits (635) (611)

Decrease in provisions (14,903) (17,711)

Cash generated from operations 47,039 747,438

Interest received 43,859 29,152

Dividends received 13,311 25,878

Interest paid (7,063) (8,539)

Income tax paid (220,689) (140,210)

Net cash provided by (used in) operating activities $ (123,543) 653,719


17

(In thousands of US dollar (Note 30)) Note

2018

2017

Cash flows from investing activities

Decrease in short-term financial instruments $ 1,132,497 1,501,744

Decrease in long-term financial instruments 174,403 93,909 Proceeds from disposal of available-for-sale financial assets

- 116

Proceeds from disposal of investments in subsidiaries and associates

63 6,143

Decrease in other receivables 96,493 3,756

Decrease in long-term other receivables 2,095 3,577

Proceeds from disposal of property and equipment 729 1,408

Proceeds from disposal of intangible assets 3,477 -

Proceeds from disposal of investment properties 2,142 6,260

Increase in short-term financial instruments (596,161) (1,239,464)

Increase in long-term financial instruments (663,035) (711,098)

Purchases of available-for-sale financial assets - (8,878)

Purchases of financial assets at FVOCI (5,333) -

Purchases of financial assets at FVPL (4,177) - Purchases of investments in subsidiaries and associates

(10,579) (21,235)

Increase in other receivables (122,326) (5,466)

Increase in long-term other receivables (898) (4,907)

Purchases of property and equipment (6,085) (11,837)

Purchases of intangible assets (2,075) (1,907)

Purchases of investment properties (9,386) (3)

Net cash used in investing activities (8,156) (387,882)

Cash flow from financing activities

Payment of dividends (77,778) (77,778)

Repayment of current portion of long term liabilities - (89,437)

Net cash used in financing activities (77,778) (167,215)

Net increase(decrease) in cash and cash equivalents (209,477) 98,622

Cash and cash equivalents at the beginning 556,065 488,933 Effects of exchange rate changes on cash and cash equivalents

2,283 (31,490)

Cash and cash equivalents at the end of the period $ 348,871 556,065 See accompanying notes to the Separate Financial Statements. The U.S. dollars figures are provided for the convenience of the readers and do not form part of the Separate Financial Statements. Refer to Note 30.

HYUNDAI ENGINEERING CO., LTD. Notes to the Separate Financial Statements For the years ended December 31, 2018 and 2017

18

1. General Information HYUNDAI ENGINEERING CO., LTD. (the “Company”), was spun off from HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD. on January 17, 2001. The Company’s headquarters are located in 75, Yulgok-ro, Jongno-gu, Seoul, Korea. The Company acquired the assets and liabilities of engineering and construction business division, including the supervisory functions, on February 28, 2001. As a result of the merger with HYUNDAI AMCO CO., LTD. on April 1, 2014, architecture, civil, housing construction, asset management businesses have been added to the Company’s business segment. The Company’s major shareholders and their respective percentage of ownership as of December 31, 2018 and December 31, 2017, are as follows:

Shareholder

December 31, 2018 December 31, 2017

Number of shares

Percentage of ownership(%)

Number of shares

Percentage of ownership(%)

HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD.

2,933,000 38.6 2,933,000 38.6

Chung Eui-Son 890,327 11.7 890,327 11.7

HYUNDAI GLOVIS CO., LTD. 886,740 11.7 886,740 11.7

KIA MOTORS CORPORATION 710,020 9.3 710,020 9.3

HYUNDAI MOBIS CO., LTD. 710,020 9.3 710,020 9.3

Chung Mong-Ku 355,234 4.7 355,234 4.7

Treasury shares 348,335 4.6 348,335 4.6

Others 761,665 10.1 761,665 10.1

7,595,341 100.0 7,595,341 100.0


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2. Significant Accounting Policies The principal accounting policies applied in the preparation of these separate 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 Company maintains its accounting records in won and prepares statutory financial statements in the Korean language in accordance with International Financial Reporting Standards as adopted by the Republic of Korea. The accompanying separate 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 Company's financial position, financial performance or cash flows, is not presented in the accompanying separate financial statements. The separate financial statements of the Company 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 Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the separate financial statements are disclosed in Note 3.

2.2 Changes in Accounting Policies and Disclosures

(a) New and amended standards adopted by the Company The Company has applied the following standards and amendments for the first time for their annual reporting period commencing January 1, 2018. - Amendments to Korean IFRS 1028 Investments in Associates and Joint Ventures It is clarified that if the investment equity in related companies and joint ventures owned by Venture Capital Investment Corporation, mutual fund, etc. is valued at fair value instead of equity method, it can be selectively applied to each equity interest. This does not apply to the above exemptions because it does not apply to Venture Capital Investment Corporation etc. and there is no significant impact of the amendment on the financial statements. - Amendments to Korean IFRS 1040 Transfers of Investment Property Real estate changes to investment real estate or substitution of investment real estate is only possible if there is evidence of usage change, paragraph 57 of the standard clarifies that this is an example of a situation. We also clarified that real estate under construction is also included in the account substitution rules. This amendment has no significant impact on the financial statements.


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2. Significant Accounting Policies, Continued

2.2 Changes in Accounting Policies and Disclosures, Continued

- Amendments to Korean IFRS 1102 Share-based Payment We clarified that the accounting for changing the classification from cash-settled type to stock-settled type and the fair value measurement method for cash-settled share-based payment transactions is the same as the stock-settled share-based payment transactions. The amendments have no significant impact on financial statements. - Enactment of Interpretation 2122 Foreign Currency Transaction and Advance Consideration According to Interpretation enacted, the transaction date to determine the exchange rate to apply to the initial recognition of the related asset, expense, income (or part of it) is the date on which a non-monetary asset or non-monetary liability is first recognized by prepaid or received in advance. There is no significant impact of the enactment if Interpretation on financial statements. - Korean IFRS 1109 Financial Instruments The company adopted Korean IFRS 1109 Financial Instruments, on January 1, 2018 as the initial application date. Based on the transitional provisions of IFRS 1109 the comparative financial statements have not been restated, and the difference between the carrying amount of the first application date and the previous carrying amount is recognized as retained earnings (or capital) on January 1, 2018.

The correction amounts that were reflected in the balance sheet as of the date of first application of Korean IFRS 1109 are as follows.

(In millions of won) Beginning balance (Before revision)

Effect of change in accounting policy

K-IFRS 1109 Beginning balance

(After revision)

Trade receivables W 985,374 (8,537) 976,837 Other current assets 2,367,980 (2,019) 2,365,961 Due from customers for contract work 355,561 (4,053) 351,508

Inventories 394,969 - 394,969

Non-current assets 1,958,104 2,240 1,960,344 Total assets 6,061,988 (12,369) 6,049,619 Trade payables 843,338 - 843,338 Due to customers for contract work 789,178 - 789,178

Other current liabilities 655,110 - 655,110 Non-current liabilities 494,801 - 494,801 Total liabilities 2,782,428 - 2,782,428 Retained Earnings 1,825,567 (10,997) 1,814,570

Others 1,453,993 (1,372) 1,452,621

Total equity 3,279,560 (12,369) 3,267,191


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Korean IFRS 1109 contains three principal classification categories for financial assets measured at amortized cost, financial assets at FVOCI and financial assets at FVPL. The classification of financial assets in accordance with Korean IFRS 1109 is generally determined based on the business model in which the financial assets are managed, and the characteristics of the contractual cash flows of the financial assets. Korean IFRS 1109 removed the categories of financial assets held-to-maturity, loan and receivables and available-for-sale financial assets. Derivatives embedded in contracts whose main contract falls under the scope of this standard are not separated, and financial assets are classified based on the entire complex financial instrument. Korean IFRS 1109 has maintained most of the existing requirements for the classification and measurement of traditional financial liabilities in accordance with Korean IFRS 1039. The adoption of Korean IFRS 1109 has no significant impact on the entity's accounting policy for financial liabilities and derivatives (derivatives used as a hedging instrument). The following tables and notes describe the initial measurement categories of Korean IFRS 1039 and the new measurement categories of Korean IFRS 1109 for each category of the company's financial assets and financial liabilities as of January 1, 2018. The effect of the application of Korean IFRS 1109 on the carrying amount of financial assets on January 1, 2018 relates only to the new impairment requirements.

(In millions of won)

Classification under K-IFRS 1039

Carrying amount

under K-IFRS 1039


Carrying amount

under K-IFRS 1109

Financial assets

Cash and cash equivalents

Loans and receivables W

621,737 W Amortized cost 321,737

Financial assets at FVPL

300,000

Short-term financial instruments

Loans and receivables

1,200,514 Amortized cost 25,369


1,175,145

Long-term financial instruments

Loans and receivables

585,098 Amortized cost 98


585,000

Trade receivables Loans and receivables 985,374 Amortized cost 976,837 Other receivables Loans and receivables 177,067 Amortized cost 175,048 Long-term other receivables Loans and receivables 455,353 Amortized cost 450,095 Available-for-sale financial assets

Available-for-sale financial assets

45,226

-

-


-

- Financial assets at FVPL

21,099

Financial assets at FVOCI

-

- Financial assets at FVOCI

26,757


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Carrying amount

under K-IFRS 1039


Carrying amount

under K-IFRS 1109

Financial liabilities

Amortized cost

Financial liabilities at amortized cost

W 843,338 Financial liabilities at amortized cost

W 843,338

Other payables


119,971 Financial liabilities at amortized cost

119,971

Other financial liabilities – current


772 Financial liabilities at amortized cost

772

Debentures



299,419

Long-term other payables



53,731

Other financial liabilities - non-current



25,952

① Equity instruments are products that the company invests for the purpose of strategic long-term holding. To the extent permitted by Korean IFRS 1109, the company has designated these investment assets as financial assets at FVOCI at the initial adoption date. Unlike Korean IFRS 1039, the cumulative fair value gains and losses associated with these equity instruments are not reclassified into current profit or loss.

② Based on Korean IFRS 1039 these equity instruments were designated as financial assets as measured at fair value through profit or loss because they were managed on a fair value basis and the results were evaluated. These assets are classified as financial assets at FVPL under Korean IFRS 1109.

③ Trade receivables and other receivables classified as loans and receivables in accordance with Korean IFRS 1039 will be classified as financial assets at amortized cost. With the application of Korean IFRS 1109, an additional allowance for doubtful accounts of 15,814 million won was recognized in retained earnings on January 1, 2018.


23



The effect of adjusting the carrying amount of financial assets in accordance with Korean IFRS 1039 to the carrying amount in accordance with Korean IFRS 1109 on January 1, 2018 is as follows.



Reclassification Remeasurement Classification under K-IFRS 1109

Financial assets Amortized cost

Trade receivables W 985,374 (985,374) - - - 985,374 (8,537) 976,837

Other receivables 177,067 (177,067) - - - 177,067 (2,019) 175,048

Long-term other receivables 455,353 (455,353) - - - 455,353 (5,258) 450,095

Total financial assets measured at amortized cost

1,617,794 - (15,814) 1,601,980

Financial assets at fair value Available-for-sale financial assets

45,226 (45,226) - -

Financial assets at FVPL - 21,649 (550) 21,099 Financial assets at FVOCI - 23,577 3,180 26,757 Total financial assets measured at fair value

45,226 - 2,630 47,856

Korean IFRS 1109 replaced Korean IFRS 1039, ‘Incurred loss’ model with ‘Expected credit loss’ model. The new damage model applies to financial assets measured at amortized cost, contract assets and debt instruments measured at FVOCI but not to equity instrument investments. Credit losses in Korean IFRS 1109 will be recognized earlier than Korean IFRS 1039. Impairment loss on assets subject to the Korean IFRS 1109 damage model is generally expected to increase and the volatility to increase. If the company applied the damage requirement of Korean IFRS 1109 on January 1, 2018 the company determined that an additional impairment loss would occur as follows:

(In millions of won) Division Amount

Allowance for doubtful accounts under K-IFRS 1039 on December 31, 2017 W (211,386)

Additional impairment losses recognized on January 1, 2018 -

Trade and other receivables as of December 31, 2017 (15,814)

Contracted assets recognized upon application of K-IFRS 1115 (4,053)

Allowance for doubtful accounts under K-IFRS 1109 on January 1, 2018 (231,253)


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- Korean IFRS 1115 Revenue from Contracts with Customers

The company adopted Korean IFRS 1115 ‘Revenue from Contracts with Customers’. In accordance with the transitional provisions of K-IFRS 1115 the comparative financial statements have not been restated and the cumulative effect of the initial application is retroactively applied to recognize retained earnings on January 1, 2018. The adjusted amounts that were first reflected in the financial statement as of the initial application date of Korean IFRS 1115 are as follows.


Beginning Balance (Before revision)

Effect of change in accounting policy

K-IFRS 1115

Beginning Balance (After revision)

Trade receivables W 985,374 - 985,374

Other current assets 2,367,980 (55,480) 2,312,500

Due from customers for contract work 355,561 (60,250) 295,311

Inventories 394,969 - 394,969

Non-current assets 1,958,104 14,420 1,972,524

Total assets 6,061,988 (101,310) 5,960,678

Trade payables 843,338 - 843,338

Due to customers for contract work 789,178 (30,506) 758,672

Other current liabilities 655,111 (29,517) 625,594

Non-current liabilities 494,801 - 494,801

Total liabilities 2,782,428 (60,023) 2,722,405

Retained Earnings 1,825,567 (41,287) 1,784,280

Others 1,453,993 - 1,453,993

Total equity 3,279,560 (41,287) 3,238,273

- Incremental cost of contract Based on Korean IFRS 1115 the company recognized the costs incurred regardless of whether or not the contract is concluded regardless of the contract as an expense at the time of occurrence unless it is clear to the customer that the cost can be claimed. We also recognized as an asset only the amount expected to be recovered as a cost that did not enter into the contract (the incremental cost of the contract) as the cost incurred to enter into a contract with the customer. Retained earnings of 55,480 million won are reflected in the basis financial statements as a result of these changes in accounting policies. - Significant financial elements

The company adjusted the price paid to reflect the impact of the time value of money in the event that significant financial benefits are provided to the client or an entity while the goods or services are transferred to the client due to the payment timing agreed upon between the parties in determining the transaction price. As a result of these changes in accounting policies, retained earnings of 227 million won are reflected in the basis financial statements.


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- Offsetting of contract assets and contract liabilities The company accounts for the remaining rights and obligations of the contract on a net basis and represents them as contract assets and contract liabilities under Korean IFRS 1115. Reclassifications due to these changes in accounting policies are reflected in the basis financial statements. - Indication of construction loss provisions In accordance with Korean IFRS 1115 the construction loss provision is grossly stated in the financial statements without adjusting to contract assets and contract liabilities. Reclassifications due to these changes in accounting policies are reflected in the basis financial statements.

The company newly adopted the following revised standard Korean IFRS 1109 and 1115 from the accounting period beginning on January 1, 2018. And the effect on financial statements is as follows.

- Balance sheet


Reported amounts (*)

Adjustment

If the change

standard does not apply

Effect of K-IFRS 1109


Trade receivables W 814,545 (6,191) - 820,736 Other current assets 2,807,428 (2,708) (70,554) 2,880,690 Due from customers for contract work

517,454 (6,217) (122,623) 646,294

Inventories 352,050 - - 352,050 Non-current assets 1,455,128 8,705 - 1,446,423 Total assets 5,946,605 (6,412) (193,176) 6,146,193 Trade payables 837,181 - - 837,181 Due to customers for contract work

612,018 - (45,991) 658,009

Other current liabilities 739,004 - (76,664) 815,668 Non-current liabilities 437,085 - - 437,085 Total liabilities 2,625,288 - (122,655) 2,747,943 Retained Earnings 1,932,049 (7,984) (70,521) 2,010,554 Others 1,389,268 1,572 - 1,387,696 Total equity 3,321,317 (6,412) (70,521) 3,398,250

(*) It is the amount after the adjustment by application of Korean IFRS 1109, 1115 is reflected.


26



- Income statement and total comprehensive income

(In millions of won) Adjustment

Reported amount (*)

Effect of

K-IFRS 1109


Total

adjustment

If the change standard does

not apply Revenue 5,406,304 - 266 266 5,406,038 Cost of sales 4,627,648 - - - 4,627,648 Selling and administrative expenses

327,586 (181) 29,191 29,010 298,576

Other profit (36,691) (1,753) - (1,753) (34,938) Finance profit 53,444 5,133 (234) 4,899 48,545 Income tax expense 206,976 (44) (2,818) (2,862) 209,838 Profit for the year 260,847 3,606 (26,341) (22,735) 283,582 Total comprehensive income for the year

182,377 7,757 (26,341) (18,584) 200,961

(*) It is the amount after the adjustment by application of Korean IFRS 1109, 1115 is reflected.

(b) New standards and interpretations not yet adopted by the Company The contents of the Korean IFRS that has been enacted and published but has not yet come into effect are as follows. - Enactment of Korean IFRS 1116 Leases

The standard introduces a comprehensive model for lease contract identification and accounting for both the lease user and the lease provider. The statement replaces Korean IFRS 1017 ‘Lease’ and the related lease-related provisions including related interpretation, and the company will apply this standard from the beginning of the period after January 1, 2019.

The standard separates leases and service contracts based on whether the identified asset is controlled by the customer. And the requirement that lease users need to distinguish between operating leases and finance leases has been deleted and instead the lease users must recognize the licensed assets and the associated liabilities for all leases except short-term leases and small-value asset leases by a model.

Licensed assets are measured initiallly at cost and subsequently at cost (with some exceptions) reflecting the amount of remeasurement of the lease liability minus accumulated depreciation and accumulated impairment losses. Lease liabilities are measured at the present value of lease payments not paid upon initial recognition. Subsequently the lease liability is adjusted to reflect the impact of the change in the lease as well as interest and lease payments.

In addition, under Korean IFRS 1017, operating lease payments have been displayed as operating cash flow, but in this standard, lease payments are divided into principal and interest parts and are shown as cash flow from operating activity and cash flow from financing activity respectively it is also affected by the classification of cash flows.


27



In contrast to the accounting for lease users the standard applies the lease provider's accounting rules in Korean IFRS 1017 almost as it is and requires to classify the lease as an operating lease or a finance lease continually for the lease provider. The standard also requires expanded footnote disclosure. The company is analyzing the impact of adopting the revised standard.

2.3 Subsidiaries, Joint Ventures, and Associates

The financial statements of the Company are the separate financial statements prepared in accordance with Korean IFRS 1027 Separate Financial Statements. Investments in subsidiaries, joint ventures and associates are recognized at cost under the direct equity method. Management applied the carrying amounts under the previous K-GAAP at the time of transition to the Korean IFRS as deemed cost of investments. The Company recognizes dividend income from subsidiaries, joint ventures and associates in profit or loss when its right to receive the dividend is established.

2.4 Foreign Currency Translation

(1) Functional and presentation currency Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which headquarter, overseas branches and overseas offices operate (“the functional currency”). The separate financial statements are presented in Korean won.

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

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


28


2.5 Financial Assets

(1) Recognition and initial measurement Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets or liabilities are recognized in statement of financial position when, and only when, the Company becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

(2) Classification and subsequent measurement On initial recognition, a financial asset is classified as measured at: amortized cost; FVOCI – debt investment; FVOCI – equity investments; or FVPL. Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model. A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated at FVPL: -It is held within a business model whose objective is to hold assets to collect contractual cash flows; and -Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVPL: -It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and -The contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. On initial recognition of an equity investments that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. However once elected, it cannot be canceled. This election is made on an investment-by-investment basis. All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVPL. This includes all derivative financial assets. At initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. However once elected, it cannot be canceled.


29


2.5 Financial Assets, Continued, Continued

(3) Subsequent measurement and gains and losses

Classification Subsequent measurement

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

Financial assets at amortized cost

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

Classification Subsequent measurement

Debt investments at FVOCI

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

Equity investments at FVOCI

These assets are subsequently measured at fair value. Dividends are recognized in profit or loss unless they clearly represent a recovery of investment costs. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.

(4) Impairment The Company recognizes impairment in accordance with expected credit loss impairment model for investments in debt as measured at amortized cost or fair value through other comprehensive income, lease receivables, contract assets, loan commitments, or financial guarantee contracts. The Company recognizes the loss allowance for financial assets as 12 month- expected credit losses or lifetime expected losses classified by 3 stages as listed in following table depending on the degree of increase in credit risk since initial recognition.

Remarks(*1) The loss allowance

Stage 1 No significant increase in credit risk after initial recognition(*2)

12-month expected credit losses: expected credit losses that result from those default events on the financial instrument that are possible within 12 months after the reporting date.

Stage 2 Significant increase in credit risk after initial recognition

Lifetime expected credit losses: expected credit losses that result from all possible default events over the life of the financial instrument.

Stage 3 Credit-impaired


30


2.5 Financial Assets, Continued, Continued

(4) Impairment, Continued (*1) The loss allowance of trade receivables or contract assets that result from transactions that are within the scope of K-IFRS 1115, Revenue from Contracts with Customers, and that do not contain a significant financing component in accordance with K-IFRS 1115 should be measured at an amount equal to lifetime expected credit losses; or that contains a significant financing component in accordance with K-IFRS 1115 can be measured at an amount equal to lifetime expected credit losses. Also, the loss allowance of lease receivables can be measured at an amount equal to lifetime expected credit losses. (*2) The Company may assume that the credit risk on financial assets has not increased significantly if the financial assets are determined to have low credit risk at the reporting date.

Originated credit-impaired financial assets recognize a loss allowance only the cumulative changes in lifetime expected credit losses since initial recognition. (5) Derecognition If the Company has retained substantially all the risks and rewards of ownership of the transferred asset, the Company continue to recognize the transferred asset, simultaneously, recognizes the cash flows from the asset expire as a financial liability. (6) Offsetting of financial instruments

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


31


2.6 Inventories

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

2.7 Non-current Assets Held-for-sale

Non-current assets are classified as held for sale when their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. The assets are measured at the lower amount between their carrying amount and the fair value less costs to sell.

2.8 Property, Plant and Equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

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

Useful life Buildings, structures 40 years Vehicles 5 years Tools and equipment 5 years Machinery 5 years Leasehold improvements 5 years Construction equipment 5 years

The assets’ depreciation method, residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

2.9 Government Grants

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


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2.10 Intangible Assets

The excess of consideration transferred, amount of any non-controlling interest in the acquired entity and acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recoded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognized directly in the profit or loss as a bargain purchase and carried at cost less accumulated impairment losses.

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

Membership rights that have an indefinite useful life are not subject to amortization because there is no foreseeable limit to the period over which the assets are expected to be utilized. The Company amortizes intangible assets with a limited useful life using the straight-line method over the following periods:

Useful life Orders on hand 4 - 5 years Patents-industrial 5 years Software 5 years Development costs 5 years

2.11 Investment Property

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

2.12 Impairment of Non-financial Assets

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


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2.13 Financial liabilities

(a) Classification and measurement The Company classifies non-derivative financial liabilities, except for financial liabilities at fair value through profit or loss, financial guarantee contracts and financial liabilities that arise when a transfer of financial assets does not qualify for derecognition, as financial liabilities carried at amortized cost.

(b) Derecognition

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

2.14 Financial Guarantee Contracts

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

2.15 Provisions

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

2.16 Current and Deferred Tax

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

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

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


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2.16 Current and Deferred Tax, Continued

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

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

The Company 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 Company 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 Company recognizes a deferred tax asset for all deductible temporary differences arising from such investments to the extent that it is probable the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

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

2.17 Employee Benefits

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

Generally, post-employment benefits are payable after the completion of employment, and the benefit amount depended on the employee’s age, periods of service or salary levels. The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms approximating to the terms of the related obligation. Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in the period in which they occur, directly in other comprehensive income.

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

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


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2.18 Revenue Recognition

The Company has applied K-IFRS No.1115 “Revenue from Contracts with Customers” from January 1, 2018. (1) Identifying the performance obligations The Company recognizes separated and distinct performance obligations if both of the following criteria are

met; ①The customer can benefit from the good or service either on its own or together with other

resources that are readily available to the customer, ②The Company’s promise to transfer the good or service to the customer is separately identifiable from other promise in the contract. (2) Performance obligations satisfied over time The Company recognizes revenue over time as performance of the Company creates or enhance an asset that the customer controls as the asset is created or enhanced or performance of the Company does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date. Certain construction service contracts for apartments is recognized revenue over time for contracts that meet the Korea Accounting Institute Questionnaire ‘2017-I-KQA015’, and this accounting is effective only in accordance with K-IFRS of the Clause 1, Article 5 of the External Audit Act. (3) Progress measurement with input method The Company recognizes revenue based on the percentage of completion with input method, after excluding the effects of any inputs that do not depict performance of the Company from an input method in case of performance obligations satisfied over time. If the output of performance obligation could not be measured reliably but be expected recovering cost, the input method to recognizes revenue only to the extent of that cost incurred. Moreover, the Company recognizes revenue at an amount equal to the cost of a good used to satisfy a performance obligations as the Company expects the good is not distinct, the customer is expected to obtain control of the good significantly before receiving services related to the good, the cost of the transferred good is significant relative to the total expected costs to completely satisfy the performance obligation and the Company procures the good from a third party and is not significantly involved in designing and manufacturing the good. (4) Variable Consideration The Company estimate an amount of variable consideration using the expected value or the most likely amount and include in the transaction price some or all of an amount of variable consideration estimated only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with recognizing revenue. (5) Incremental costs of obtaining a contract The incremental costs of obtaining a contract are those costs that the Company incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained and recognized as an expense when incurred, unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained. The Company reviews each incurred cost and recognizes based on future percentage of completion incremental costs of obtaining a contract which is classified asset.


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2.18 Revenue Recognition, Continued

(6) Cost to fulfil a contract If the costs incurred in fulfilling a contract with a customer are not within the scope of another Standard (for example, K-IFRS 1002 Inventories, K-IFRS 1016 16 Property, Plant and Equipment or K-IFRS 1038 Intangible Assets), the Company recognizes an asset from the costs incurred to fulfil a contract only if those costs meet all of the following criteria:

- The costs relate directly to a contract or to an anticipated contract that the entity can specifically identify. - The costs generate or enhance resources of the entity that will be used in satisfying performance

obligations in the future. - The costs are expected to be recovered.

2.19 Approval of Issuance of the Financial Statements

The separate financial statements 2018 were approved for issue by the Board of Directors on February 20, 2019 and are subject to change with the approval of shareholders at their Annual General Meeting.


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3. Significant Accounting Estimates and Assumptions

The preparation of financial statements requires the Company to make estimates and assumptions concerning the future. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (1) Estimated impairment of goodwill The Company tests whether goodwill has suffered any impairment on an annual basis. The recoverable amount of a cash generating unit (CGU) is determined based on value-in-use calculations. (2) Uncertainty of the estimated total contract revenue Total contract revenue is measured based on contractual amount initially agreed. The contract revenue can be increased by additional contract work, claims and incentive payments during the course of construction, or decreased by the penalty when the completion of contract is delayed due to the fault of the Company. Therefore, the measurement of contract revenue is affected by the uncertainty of the occurrence of future events. The change in contract revenue is recognized when it is probable the customer will approve the increase in revenue due to the changes in contract work, or when it is probable the Company will be able to satisfy the performance requirements, and the amount can be reliably estimated. (3) Uncertainty of the estimated total contract revenue due to construction delay The measurement of contract revenue is affected by the uncertainty of the occurrence of future events. The contract revenue can be decreased by the claims of liquidated damages when the completion of contract is delayed due to the fault of Company. Therefore, the damage claims for the delay are estimated based on historical experience when the completion date is expected to be delayed. The Company is constantly putting an effort to minimize damage claims by requesting an extension of the completion date from the customer and to undertake measures in order to comply with the completion date. (4) Estimated total contract costs Construction revenue is recognized according to the percentage of completion, which is measured on the basis of the gross amount incurred to date. Total contract costs are estimated based on future estimates of material costs, labor costs, construction period and others.


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3. Significant Accounting Estimates and Assumptions, Continued (5) Income taxes The Company’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 Company 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 Company’s income tax is dependent on the investments and increase in wages, there is an uncertainty measuring the final tax effects. (6) Provisions The Company recognizes provisions for warranty reserve as at the reporting date. The amounts are estimated based on historical data. (7) Net defined benefit liability The present value of net defined benefit liability depends on a number of factors that are determined on an actuarial basis using a number of assumptions including the discount rate.


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4. Financial Instruments by Category The book value and fair value of financial assets and liabilities including fair value hierarchy are as follows: (It does not include the fair value information about financial assets and liabilities which are not measured at fair value if the carrying amount is a reasonable approximation of fair value)

(1) Fair values of financial assets as of December 31, 2018 and 2017, are as follows:

(In thousands of won) December 31, 2018

Financial assets Amortized

cost

Financial assets at

FVPL

Financial assets at

FVOCI Total Fair

value Cash and cash equivalents W 390,072,209 - - 390,072,209 - Short-term financial instrument assets 155,471,170 1,575,001,000 - 1,730,472,170 1,575,001,000

Long-term financial instrument assets 1,351,405 - - 1,351,405 -

Trade receivables 814,544,833 - - 814,544,833 - Other receivables 229,901,976 - - 229,901,976 - Long-term other receivables 538,089,774 - - 538,089,774 - Financial assets at FVPL - 30,903,442 - 30,903,442 30,903,442 Financial assets at FVOCI - - 34,740,852 34,740,852 34,740,852 W 2,129,431,367 1,605,904,442 34,740,852 3,770,076,661 1,640,645,294

1 Equity instruments that do not have a quoted price in an active market are measured at cost because its fair value cannot be measured reliably and excluded from the fair value disclosures.

(In thousands of won) December 31,2017

Financial assets Loans and receivables

Available-for-sale financial

assets Total Fair value Cash and cash equivalents W 621,736,763 - 621,736,763 - Short-term financial instrument assets 1,200,513,618 - 1,200,513,618 -

Long-term financial instrument assets 585,098,000 - 585,098,000 -

Trade receivables 985,374,250 - 985,374,250 - Other receivables 177,067,055 - 177,067,055 - Long-term other receivables 455,353,092 - 455,353,092 - Available for sales financial assets1 - 45,225,856 45,225,856 8,666,637

W 4,025,142,778 45,225,856 4,070,368,634 8,666,637


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4. Financial Instruments by Category, Continued

(2) Fair values of financial liabilities as of December 31, 2018 and 2017, are as follows:

(In thousands of won) December 31, 2018 December 31, 2017

Financial liabilities

Financial liabilities at amortized cost Fair value

Financial liabilities at amortized cost Fair value

Traded payables W 837,181,259 - 843,338,452 - Other payables1 75,690,046 - 64,775,542 - Current portion of

other financial guarantee liabilities 719,875 - 771,802 -

Debentures2 299,642,400 - 299,419,420 - Long-term other payables 56,397,430 - 53,730,501 -

Financial guarantee liabilities 28,457,552 - 25,951,673 -

W 1,298,088,562 - 1,287,987,390 -

1 The difference in the amount presented on the separate statement of financial position and the amount presented above represents non-trade advances and accrued employee benefit expenses.

2 The amount includes the current portion of long-term liabilities in the statement of financial position.

(3) The Company analyzes financial instruments carried at fair value based on the following valuation techniques. The defined levels are as follows:

Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either

directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)

(Level 3). (4) Fair value hierarchy classifications of the financial instruments that are measured at fair value as of

December 31, 2018 and 2017, are as follows:




Financial assets at FVOCI

Available-for-sale financial assets

Level 2 Level 3

December 31, 2018 W 1,575,001,000 30,903,442 34,740,852 - December 31, 2017 - - - 8,666,637

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques make maximum use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. If one or more significant inputs are not based on the observable market data, these financial instruments are included in level 3.


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(5) Details of changes in the financial instruments that are included in level 3 for the years ended December 31, 2018 and 2017 are as follows:

(In thousands of won) 2018 2017

Financial assets at

FVPL Financial assets at

FVOCI Available-for-sale financial assets

Prior year ending balance W 8,666,637 - 8,275,779 Adjustment on initial application of new accounting standards (No.1109) 12,432,862 26,757,160 -

Current year beginning balance W 21,099,499 26,757,160 - Comprehensive income and others - 2,021,423 390,858 Profit for the year and others 5,133,503 - - Acquisition 4,670,440 5,962,269 - Current year ending balance W 30,903,442 34,740,852 8,666,637

(6) Valuation techniques and inputs

① Valuation techniques and inputs used in the recurring and non-recurring fair value measurements and disclosed fair value categorized in Level 3 of the fair value hierarchy as of December 31, 2018, are as follows:

(In thousands of won) December 31, 2018 Fair value Level Valuation techniques Financial assets at FVPL Construction Guarantee Cooperative equity investments and others W 9,510,102

3

Net asset valuation and others

Debt securities 16,633,520 Cash flow discount method

Debt securities 676,940 Usage of past transactions

Collective investment securities 4,082,880 Market approach method

W 30,903,442 Financial assets at FVOCI

Non-marketable Equity securities W 4,283,475 3

Net asset valuation and others

Non-marketable Equity securities 30,457,377 Cash flow discount method

W 34,740,852 W 65,644,294


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(6) Valuation techniques and inputs, continued

② Level 3 assessment techniques and significant but not observable input variables

The valuation techniques used to measure fair value at Level 3 and the inputs that are significant but not observable are as follows:

Division

Evaluation technique

Significant but not observable Input variable

Fair value measurements and significant but not observable Interrelationship between input

variables Equity

securities, etc

Cash flow discount method,

etc.

Expected revenue growth rate, risk-adjusted discount

rate, etc.

The estimated fair value increases (decreases) as follows:

ㆍExpected revenue growth is going to be higher (lower)

ㆍRisk-Adjusted discount rate is Increasing (Decreasing)

Generally, revenue growth rates will vary similar to EBITDA.

(7) Gains and losses on each category of financial instruments for the years ended December 31, 2018 and 2017 are as follows:

(In thousands of won) December 31, 2018 December 31, 2017 Financial assets at amortized cost(formerly, loans and receivables) Interest income W 58,738,435 45,524,135 Impairment loss (4,971,789) (38,985,390) Other impairment loss (30,424,921) (44,655,620) Reversal of other impairment loss 12,592,366 661,947

Available-for-sale financial assets Dividend income - 367,247 Loss on disposal of available-for-sale financial assets - (1,068,474) Impairment loss of available-for-sale financial assets - (3,792,120)

Financial assets at FVPL Dividend income 82,327 - Gain on valuation of financial assets at FVPL 5,969,088 - Loss on disposal of financial assets at FVPL (27,396) - Loss on valuation of financial assets at FVPL (835,586) -

Financial assets at FVOCI Dividend income 90,031 -

Financial liabilities at amortized cost Interest expense (8,120,621) (9,815,033)

Net exchanges differences that relate to loans and receivables, and financial liabilities measured at amortized cost amount to W11,827 million (2017: (-)W86,833 million).


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5. Cash and Cash Equivalents

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

(In thousands of won) December 31, 2018 December 31, 2017 Cash on hand W 403,935 479,068 Local currency bank deposits 85,068,451 374,952,859 Foreign currency bank deposits 304,599,823 246,304,836

W 390,072,209 621,736,763


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6. Trade Receivables, Due from Customers for Contract Work, Other Receivables and Long-term Other Receivables

(1) Components of trade receivables, due from customers for contract work, other receivables and long-term

other receivables as of December 31, 2018 and 2017, are as follows:

(In thousands of won) December 31, 2018 December 31, 2017 Trade receivables Trade receivables W 843,482,648 1,008,300,031 Less : provisions for impairment (28,937,815) (22,925,781)

W 814,544,833 985,374,250

Due from customers for contract work Due from customers for contract work W 555,933,633 382,515,097 Less : provisions for impairment (38,479,386) (26,953,883)

W 517,454,247 355,561,214

Other receivables Non-trade receivables W 241,729,023 211,739,299 Less : provisions for impairment (79,682,243) (67,550,051)

Accrued income 38,617,618 28,917,673 Less : provisions for impairment (8,931,648) (8,008,853)

Short-term loans 35,966,296 6,994,670 Less : provisions for impairment (503,096) (25,435)

Current portion of long-term loans 2,697,656 4,854,557 Less : provisions for impairment (31,693) -

Current portion of guarantee deposits 40,614 145,195 Less : provisions for impairment (551) -

W 229,901,976 177,067,055

Long-term other receivables Long-term non-trade receivables W 20,018 12,846 Less : provisions for impairment (232) -

Long-term loans 99,866,920 94,046,737 Less : present value discount (1,198,183) - Less : provisions for impairment (86,782,974) (81,627,171)

Guarantee deposits 543,073,793 453,089,601 Less : present value discount (6,394,092) (5,873,735) Less : provisions for impairment (10,495,476) (4,295,186)

W 538,089,774 455,353,092


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6. Trade Receivables, Due from Customers for Contract Work, Other Receivables and Long-term Other Receivables, Continued

(2) Expected credit losses and provisions for impairment for trade receivables

The Company measures provisions for impairment at an amount equal to lifetime expected credit losses for its trade receivables. Expected credit losses on trade receivables are determined using a provision setting table that takes into account an analysis of the current financial position of the debtor, including the debtor's past default experience and factors specific to the borrower, the general economic environment, and the assessment of the current situation at the reporting date as well as the assessment of how the situation will change in the future. Information on expected credit losses and credit risk exposures for trade receivables as of December 31, 2018 is as follows:


Weighted average default rate Book value

Provisions for impairment Credit damage

Receivables unexpired 0.75% W 602,488,956 4,545,041 No Up to 3 months 0.75% 28,597,598 215,734 No 3 to 6 months 0.75% 48,126,267 363,054 No Over 6 months 14.50% 164,269,827 23,813,986 No 3.43% W 843,482,648 28,937,815

The Company issues trade receivables when there is information indicating that the debtor is facing serious financial difficulties, such as liquidation of the debtor or commencement of bankruptcy proceedings, and there is no reasonable expectation of recovery.


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6. Trade Receivables, Due from Customers for Contract Work, Other Receivables and Long-term Other Receivables, Continued

(3) Movements on the provision for impairment of trade and other receivables for the years ended December

31, 2018 and 2017, are as follows: (In thousands of won) 2018 Beginning balance

Provision for impairment at K-IFRS

1039

Adjustment according to K-IFRS 1109

Impairment loss

Reversal of provision for impairment

Write off Ending balance

Trade receivables W 22,925,781 8,537,141 10,688,558 (13,213,665) - 28,937,815 Dues from customer for contract work 26,953,883 4,053,398 26,838,711 (19,341,901) (24,705) 38,479,386

Other receivables 75,584,339 2,018,564 24,326,667 (12,592,366) (187,973) 89,149,231 Long-term other receivables 85,922,357 5,257,986 6,098,340 - - 97,278,683 W 211,386,360 19,867,089 67,952,276 (45,147,932) (212,678) 253,845,115

(In thousands of won) 2017

Beginning

balance Impairment

loss

Reversal of provision for impairment Write off

Ending balance

Trade receivables W 64,519,632 16,452,709 - (58,046,560) 22,925,781 Dues from customer for contract work 4,415,153 22,538,730 - - 26,953,883

Other receivables 47,896,000 39,467,111 (33,575) (11,745,197) 75,584,339 Long-term other receivables 107,911,989 5,182,460 (628,372) (26,543,720) 85,922,357

W 224,742,774 83,641,010 (661,947) (96,335,477) 211,386,360


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7. Inventories

(1) Details of inventories as of December 31, 2018 and 2017, are as follows: (In thousands of won) December 31, 2018 December 31, 2017 Land W 333,491,220 389,052,780 Less : valuation allowance (840,369) (840,369)

Raw material 14,713,258 4,111,862 Completed housing 1,766,785 4,009,161 Less : valuation allowance (549,230) (2,705,576)

Incomplete housing developments 3,467,995 1,341,529 W 352,049,659 394,969,387

(2) Changes in valuation allowance for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of won) 2018 Beginning balance Recognition Disposal Ending balance Land W (840,369) - - (840,369) Completed housing (2,705,576) (549,230) 2,705,576 (549,230) W (3,545,945) (549,230) 2,705,576 (1,389,599)

(In thousands of won) 2017 Beginning balance Recognition Disposal Ending balance Land W - (840,369) - (840,369) Completed housing (1,861,849) (2,953,304) 2,109,577 (2,705,576) W (1,861,849) (3,793,673) 2,109,577 (3,545,945) 8. Other Current Assets

Details of other current assets as of December 31, 2018 and 2017, are as follows: (In thousands of won) December 31, 2018 December 31, 2017 Advance payments W 312,492,409 163,864,261 Less : provisions for impairment (12,471,757) (18,117)

Prepaid expenses 140,861,896 192,860,489 Prepaid value added taxes 16,099,442 11,955,128

W 456,981,990 368,661,761


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9. Short-term and Long-term Financial Instruments

(1) Details of financial instruments as of December 31, 2018 and 2017, are as follows: (In thousands of won)

Details December 31, 2018 December 31, 2017

Short-term financial instruments Time deposits and others W 1,730,472,170 1,200,513,618 Long-term financial instruments Time deposits 1,338,405 585,085,000 Special deposits 13,000 13,000

1,351,405 585,098,000

W 1,731,823,575 1,785,611,618

(2) Details of financial instruments as collateral


December 31, 2018 December 31, 2017 Details

Short-term financial instruments W 85,000 - License deposit guarantee

737,000 - Pledged for leasehold deposits

1,100,000 - Collateral for completion of construction

Long-term financial instruments

1,338,000 -

Collateral to HOUSING & URBAN GUARANTEE CORPORATION

- 85,000 License deposit guarantee

- 369,000 Pledged for leasehold deposits

W 3,260,000 454,000

10. inancial Assets at FV (Formerly, Available-for-sale Financial Assets)

(1) Details of financial assets at FVPL as of December 31, 2018 and 2017, are as follows: (In thousands of won) December 31, 2018 December 31, 2017 Acquisition cost Book value Acquisition cost Book value Investment in Union & Association W 9,806,813 13,168,082 5,806,813 8,666,637

Investment in BTO business1 17,370,330 17,735,360 16,699,890 12,981,890

Investment in BTL business1 1,062,795 - 1,062,795 -

W 28,239,938 30,903,442 23,569,498 21,648,527

1 Investment in BTO business of W15,080 million and investment in BTL business of W1,062 million are


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pledged for guarantee (Note 26). (2) Details of financial assets at FVOCI at December 31, 2018 and 2017, are as follows:


Acquisition cost Book value

Acquisition cost Book value

Unlisted securities1 W 32,850,311 34,740,852 26,888,042 23,577,329

1 Unlisted securities of W207 million are pledged for guarantee (Note 26).

(3) Changes in the fair value of financial assets at FVOCI(formerly, available-for-sale financial assets) for the years ended December 31, 2018 and 2017, are as follows:


Changes in the fair value of financial assets at

FVOCI

Changes in the fair value of available-for-sale

financial assets1

Beginning balance W - 1,851,347 Adjustment on initial application of new accounting standards (No.1109) 726,122 -

Increase(decrease) 2,021,423 1,005,414 Tax effect 894,983 (758,542)

Ending balance W 3,642,528 2,098,218

1 Gains and losses on available-for-sale financial assets amounting to W2,454 million were reclassified to fair value at financial assets at FVPL.


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11. Investments in Subsidiaries and Associates

(1) Details of investments in subsidiaries and associates as of December 31, 2018 and 2017, are as follows:



Name of Company

Country

Percentage of

ownership(%) Book value

Percentage of


Subsidiaries HYUNDAI ENGINEERING PAKISTAN (PRIVATE) LIMITED

Pakistan 100 W - 100 W -

GALING POWER & ENERGY CONSTRUCTION CO. INC.

Philippines 100 - 100 -

HYUNDAI ENGINEERING MEXICO, S. DE R.L. DE C.V.

Mexico 100 249,410 100 249,410

HYUNDAI ENG AMERICA INC USA 100 1,971,307 100 6,210,176 HYUNDAI ENGINEERING INDIA PRIVATE LIMITED

India 100 2,227,436 100 3,923,112

HYUNDAI ENGINEERING CO., LTD. (BEIJING) (formerly AMCO CHINA(BEIJING) CO., LTD.)

China 90 913,430 90 913,430 HYUNDAI ENGINEERING RUS. LLC

Russia 100 3,075,774 100 3,075,774

HYUNDAI ENGINEERING DEUTSCHLAND GMBH

Germany 100 1,577,700 100 1,577,700

HYUNDAI ENGINEERING BRASIL CONSTRUTORA E GESTAO DE PROJETOS LTDA.

Brazil 100 2,244,550 100 4,037,265 HYUNDAI ENGINEERING INSAAT TURIZM SANAYI VE TICARET LIMITED SIRKETI

Turkey 100 198,610 100 198,610 HYUNDAI ENGINEERING CZECH S.R.O.

Czech 100 1,584,481 100 1,584,481

HYUNDAI ENGINEERING SLOVAKIA S.R.O.

Slovakia 100 1,548,828 100 1,548,828

PT. HEIN GLOBAL UTAMA Indonesia 67 - 67 - HYUNDAI ENGINEERING MALAYSIA SDN BHD

Malaysia 100 - 100 197,895

HEC INDIA LLP India 100 190,589 100 190,589 W 15,782,115 W 23,707,270


51

11. Investments in Subsidiaries and Associates, Continued

(1) Details of investments in subsidiaries and associates as of December 31, 2018 and 2017, are as follows; Continued



Name of Company

Country

Percentage of


Percentage of


Associates HYUNDAI ENGINEERING (THAILAND) CO.,LTD.

Thailand 49 W -

49 W -

HAEVICH COUNTRY CLUB., LTD. Korea 40 - 40 - DAMYANG GREEN DEVELOPMENT CO., LTD.1

Korea 24.90 -

24.90 24,900

INCHEON GANGHWA INDUSTRIAL COMPLEX CO., LTD.

Korea 20 2,400,000

20 2,400,000 KM ENERGY CO., LTD. Korea 29.90 - 29.90 - SEJONG MIRAE INDUSTRIAL COMPLEX CO., LTD.1

Korea 20 389,280

20 400,000

THE HS-CITY EXPRESSWAY1 Korea 27.66 8,859,324 27.66 9,707,785 HYUNDAI ENGINEERING (CAMBODIA) CO.,LTD.

Cambodia - -

100 20,048

LHT INTERNATIONAL ENGINEERING JOINT STOCK COMPANY

Vietnam 30 554,534

30 554,534 VISION RIDE CO., LTD. Korea 32.92 - 32.92 - CHEONGJU OCHANG TECHNOPOLIS CO., LTD.

Korea 29 290,000

29 290,000

UZLITI ENGINEERING LLC2 Uzbekistan - - 25 25,378 CHEONGJU OKSAN2 INDUSTRIAL COMPLEX DEVELOPMENT CO., LTD.

Korea 20 2,000

20 2,000 DONGBUK LRT CO., LTD. Korea 32 2,464,000 - - TINA HYDROPOWER LIMITED Solomon

Islands 20 384,779

- - SMART VALLEY INDUSTRIAL COMPLEX CO., LTD.1

Korea 20 200,000

- -

15,543,917 13,424,645 W 31,326,032 W 37,131,915

1 As of December 31, 2018, the above investments are pledged as collateral in relation to payment guarantee of SOC and others (Note 26).

2 The Company disposed of all investments in associates related to UZLITI ENGINEERING LLC, and recognized loss on disposal of investments in associates amount to W11 million during this year.


52

11. Investments in Subsidiaries and Associates, Continued

(2) Changes in investments in subsidiaries and associates for the years ended December 31, 2018 and 2017, are as follows:


Beginning balance W 37,131,915 39,335,081 Adjustment on initial application of new accounting standards (No.1109, No.1115) (275,701) -

Acquisition 11,828,328 23,742,307 Disposal (81,311) (15,000) Impairment loss (17,277,199) (25,922,473)

Transfer - (8,000) Ending balance W 31,326,032 37,131,915

The company recognized Impairment losses of W16,649 million and W628 million as a result of financial deterioration of subsidiaries and impairment of associates during the year, respectively.


53

12. Property, Plant and Equipment

(1) Changes in property and equipment for the year ended December 31, 2018, are as follows: (In thousands of won) 2018

Land Building Structures Machinery Vehicles Tools and

equipment Construction in progress Others Total

I. Acquisition cost

Beginning balance W 26,966,965 4,193,685 425,148 11,125,790 11,528,004 31,992,125 7,409,948 24,729,030 118,370,695

Acquisition - 206,106 - 566,349 492,381 1,869,379 3,669,877 - 6,804,092

Disposal - (149,571) - (2,727,401) (1,220,168) (3,110,852) - (50,572) (7,258,564)

Reclassification (427,679) (1,692,574) - - - (75,654) (10,115,414) - (12,311,321)

Others - 4,288 - 542,605 506,456 352,957 1,057 473,576 1,880,939

Ending balance W 26,539,286 2,561,934 425,148 9,507,343 11,306,673 31,027,955 965,468 25,152,034 107,485,841 II. Accumulated depreciation

Beginning balance W - (1,891,605) (234,288) (6,874,009) (6,353,270) (25,614,110) - (24,568,984) (65,536,266)

Depreciation - (67,455) (7,202) (1,473,467) (1,898,112) (3,188,688) - (146,036) (6,780,960)

Disposal - - - 2,503,145 1,019,796 3,036,287 - 50,569 6,609,797

Reclassification - 661,755 - - - 75,636 - - 737,391

Others - 5,503 - (544,269) (65,332) (4,390) - (450,492) (1,058,980)

Ending balance W - (1,291,802) (241,490) (6,388,600) (7,296,918) (25,695,265) - (25,114,943) (66,029,018)

III. Book value

Beginning balance W 26,966,965 2,302,080 190,860 4,251,781 5,174,734 6,378,015 7,409,948 160,046 52,834,429

Ending balance W 26,539,286 1,270,132 183,658 3,118,743 4,009,755 5,332,690 965,468 37,091 41,456,823


54

12. Property, Plant and Equipment, Continued

(2) Changes in property and equipment for the year ended December 31, 2017, are as follows: (In thousands of won) 2017

Land Building Structures Machinery Vehicles Tools and

equipment Construction in progress Others Total

I. Acquisition cost


Acquisition - - - 2,362,068 1,451,836 1,745,661 7,674,768 - 13,234,333

Disposal - - - (1,955,874) (1,485,521) (3,398,650) - (1,955,042) (8,795,087)

Reclassification - - - (227,325) 227,325 - (14,913,691) - (14,913,691)

Others - - - (1,291,897) (2,773,355) (3,134,580) (1,770) (1,547,615) (8,749,217)

Ending balance W 26,966,965 4,193,685 425,148 11,125,790 11,528,004 31,992,125 7,409,948 24,729,030 118,370,695 II. Accumulated depreciation

Beginning balance W - (1,804,979) (227,084) (7,816,299) (6,473,610) (26,420,132) - (27,040,767) (69,782,871)

Depreciation - (96,585) (7,204) (1,753,469) (2,122,524) (4,051,295) - (485,068) (8,516,145)

Disposal - - - 1,919,328 1,234,766 3,092,814 - 1,390,130 7,637,038

Reclassification - - - 83,353 (83,353) - - - -

Others - 9,959 - 693,078 1,091,451 1,764,503 - 1,566,721 5,125,712

Ending balance W - (1,891,605) (234,288) (6,874,009) (6,353,270) (25,614,110) - (24,568,984) (65,536,266)

III. Book value


Ending balance W 26,966,965 2,302,080 190,860 4,251,781 5,174,734 6,378,015 7,409,948 160,046 52,834,429

(3) Distributions of depreciation cost for the years ended December 31, 2018 and 2017, are as follows:


Cost of sales W 5,358,063 6,926,144 Selling and administrative expenses 1,422,897 1,590,001 W 6,780,960 8,516,145


55

13. Investment Properties

(1) Details of investment properties as of December 31, 2018 and 2017, are as follows: (In thousands of won) December 31, 2018 December 31, 2017

Cost Accumulated depreciation

Accumulated Impairment loss Book value

Book value

Land W 36,420,105 - (9,452,577) 26,967,528 23,118,464 Buildings 8,746,098 (1,138,130) - 7,607,968 1,005,549 W 45,166,203 (1,138,130) (9,452,577) 34,575,496 24,124,013

(2) Changes in investment properties for the years ended December 31, 2018 and 2017, are as follows:


Beginning

balance Acquisition Disposal Re-

classification1 Depreciation Impairment

Ending balance

Land W 23,118,464 4,977,243 (1,555,858) 427,679 - - 26,967,528 Buildings 1,005,549 5,517,757 - 1,180,390 (95,728) - 7,607,968 W 24,124,013 10,495,000 (1,555,858) 1,608,069 (95,728) - 34,575,496

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


Beginning

balance Acquisition Disposal Re-

classification2 Depreciation Impairment

Ending balance

Land W 27,090,624 3,426 (3,094,605) 8,571,596 - (9,452,577) 23,118,464 Buildings 4,355,066 - (3,281,994) - (67,523) - 1,005,549 W 31,445,690 3,426 (6,376,599) 8,571,596 (67,523) (9,452,577) 24,124,013

2 Inventories and construction-in-progress amounting to W2,055 million and W6,516 million, respectively, are reclassified as investment properties.


56

13. Investment Properties, Continued

(3) Profit or loss recognized in relation to investment properties for the years ended December 31, 2018 and 2017, are as follows:


Rental revenue and others W 383,810 275,810 Direct operating costs (Related to investment properties with rental income) 295,194 286,422

(4) Distributions of depreciation cost for the years ended December 31, 2018 and 2017, are as follows:


Cost of sales W 34,378 67,523 Selling and administrative expenses 61,350 - W 95,728 67,523

(5) The fair value of investment properties as of December 31, 2018 and 2017 is not significantly different

from the carrying amount in the statement of financial position.


57

14. Intangible Assets

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


Contract

backlog Membership

rights Goodwill Others Total I. Acquisition cost Beginning balance W 206,104,000 24,432,871 576,572,335 61,013,150 868,122,356 Acquisition - - - 2,320,045 2,320,045 Disposal - (123,765) - (9,629,037) (9,752,802) Reclassification - - - 10,041,497 10,041,497 Others - (2,010,167) - 45,199 (1,964,968) Ending balance 206,104,000 22,298,939 576,572,335 63,790,854 868,766,128 II. Accumulated depreciation Beginning balance (163,670,250) - - (41,775,763) (205,446,013) Amortization (34,553,150) - - (9,020,311) (43,573,461) Disposal - - - 5,806,356 5,806,356 Reclassification - - - (75,636) (75,636) Others - - - (102,045) (102,045) Ending balance (198,223,400) - - (45,167,399) (243,390,799) III. Book value Beginning balance 42,433,750 24,432,871 576,572,335 19,237,387 662,676,343 Ending balance W 7,880,600 22,298,939 576,572,335 18,623,455 625,375,329


Contract

backlog Membership

rights Goodwill Others Total I. Acquisition cost Beginning balance W 206,104,000 25,393,613 576,572,335 50,576,472 858,646,420 Acquisition - 1,230 - 2,129,955 2,131,185 Disposal - - - - - Reclassification - (961,972) - 8,374,171 7,412,199 Others - - - (67,448) (67,448) Ending balance 206,104,000 24,432,871 576,572,335 61,013,150 868,122,356 II. Accumulated depreciation Beginning balance (120,024,850) - - (33,795,880) (153,820,730) Amortization (43,645,400) - - (7,988,871) (51,634,271) Disposal - - - - - Reclassification - - - - - Others - - - 8,988 8,988 Ending balance (163,670,250) - - (41,775,763) (205,446,013) III. Book value Beginning balance 86,079,150 25,393,613 576,572,335 16,780,592 704,825,690 Ending balance W 42,433,750 24,432,871 576,572,335 19,237,387 662,676,343


58

14. Intangible Assets, Continued

(2) Distributions of amortization cost for the years ended December 31, 2018 and 2017, are as follows:


Cost of sales W 2,833,919 2,136,227 Selling and administrative expenses 40,739,542 49,498,044 W 43,573,461 51,634,271

(3) The Company’s goodwill arose from the business combination with HYUNDAI AMCO CO., LTD. The

Company tests annually whether goodwill has suffered any impairment, and the recoverable amount of Cash Generating Unit is determined based on the calculated value in use. Estimated cash flows before tax based on the five-year budget approved by management was used for calculating value in use. Sales growth rate used for the period and permanent growth rate for a period exceeding five-years are as follows:

Sales growth rate (2.68)% ~ 13.88% Long-term growth rate 0% Discount rate before tax 16.30%

This growth rate does not exceed the average long-term growth rate of the industry to which the Cash Generating Unit belongs. Also, constant growth rate assumption was used in the calculation of the permanent cash flows. As a result of the impairment test of goodwill, it is determined that the carrying amount of Cash Generating Unit will not exceed its recoverable amount.


59

15. Other Payables, Other Current Liabilities and Long-term Other Payables

Details of other payables, other current liabilities and long-term other payables as of December 31, 2018 and 2017, are as follows:

(In thousands of won) Details December 31, 2018 December 31, 2017

Other payables Non-trade payables W 62,911,233 49,078,294

Accrued expenses 27,095,121 29,415,364 Withholdings 53,883,301 41,474,400 Guarantee deposit 1,000 1,000 Dividend payables 1,997 1,590 W 143,892,652 119,970,648 Other current liabilities Unearned revenue W 1,060,516 986,604 Value added tax withheld 7,792,381 12,291,638 W 8,852,897 13,278,242 Long-term other payables Guarantee deposits W 57,184,975 54,504,430 Less: present value discount (787,545) (773,929)

W 56,397,430 53,730,501 W 209,142,979 186,979,391


60

16. Debentures Debentures as of December 31, 2018 and 2017, are as follows:


Financial institution Series Issuance date Maturity

date Interest rate(%) Payment

December 31, 2018

December 31, 2017

Public subscription bond

6-2 September

25, 2014 September

25, 2019 2.92 Lump sum payment

W 100,000,000 100,000,000

7-1 April

13, 2015 April


100,000,000 100,000,000

7-2 April

13, 2015 April


100,000,000 100,000,000

Subtotal W 300,000,000 300,000,000 Less: discount on debentures payable (357,600) (580,580) Less: current portion of long-term liabilities (99,934,016) - W 199,708,384 299,419,420

17. Net Defined Benefit Liabilities

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

(In thousands of won) December 31, 2018 December 31, 2017 Present value of defined benefit obligation W 236,731,749 203,060,424

Fair value of plan assets (225,421,333) (202,513,291) Net defined benefit liabilities W 11,310,416 547,133

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

follows:

(In thousands of won) 2018 2017 Beginning balance W 203,060,424 208,094,550

Current service cost 29,915,103 33,374,552

Interest expense 8,023,015 6,819,407

Remeasurements 14,811,773 (20,980,510)

Benefit payments (20,922,912) (26,440,073)

Transfer from related companies 1,844,421 2,192,273

Others (75) 225 Ending balance W 236,731,749 203,060,424


61

17. Net Defined Benefit Liabilities, Continued

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


Interest income 8,044,248 6,239,618

Remeasurements (4,730,304) (2,093,636)

Employer contributions 35,000,000 30,000,000

Benefit payments (17,250,323) (24,622,100)

Transfer from related companies 1,844,421 2,192,273 Ending balance W 225,421,333 202,513,291

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

(In thousands of won) December 31, 2018 December 31, 2017 Cash and cash equivalents W 70,535 64,397

Short-term financial instruments - 7,483,580

Insurance and others 225,350,798 194,965,314 W 225,421,333 202,513,291

The amounts of plan assets with regards to post-employment benefits are W75,385 million (December 31, 2017: W65,565 million) to FUBON HYUNDAI LIFE INSURANCE CO., LTD. as of December 31, 2018.

(5) The significant actuarial assumptions as of December 31, 2018 and 2017, are as follows:

December 31, 2018 December 31, 2017 Discount rate 3.61% 4.17%

Salary growth rate(Considering inflation rate) 3.19% 3.27%


62

17. Net Defined Benefit Liabilities, Continued

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

Changes in assumption

Increase in assumption

Decrease in assumption

Discount rate 1.00% 7.80% decrease 9.10% increase Salary growth rate 1.00% 9.20% increase 8.10% decrease

(7) The Company reviews the funding level on an annual basis and has a policy of eliminating deficit from the fund. Expected contributions to post-employment benefit plans for the period ending December 31, 2019, are W37,903 million.

The expected maturity analysis of undiscounted pension benefits as at December 31, 2018, is as follows:


Less than 1

year Between 1 and 2 years

Between 2 and 5 years Over 5 years Total

Pension benefits W 22,041,506 28,512,647 79,819,638 722,241,590 852,615,381

The weighted average duration of the defined benefit obligations is 8.70 years.

(8) Movements in provision for long-term employee benefits for the years ended December 31, 2018 and 2017, are as follows:


Interest expense and others 1,234,305 1,209,848

Benefit payments (710,465) (683,280)

Remeasurements 734,652 (236,677)

Ending balance W 8,995,536 7,737,044


63

18. Share Capital, Other Paid-in-Capital and Other Component of Equity

(1) The Company’s total number of authorized shares is 20,000,000 shares and the total number of ordinary shares issued is 7,595,341 shares with a par value of W 5,000 per share.

Number of authorized

shares (in shares)

Number of issued shares

(in shares)

Par value per share

(in won)

Capital stock (in thousands of

won) Ordinary shares 20,000,000 7,595,341 5,000 37,976,705

(2) There are no changes in the number of shares issued by the Company, and no subsequent changes in share capital and share premium for the years ended December 31, 2018 and 2017.

(3) Details of other paid-in capital as of December 31, 2018 and 2017, are as follows:


Share premium W 1,417,314,062 1,417,314,062

Other reserves 826,926 826,926

Treasury shares (140,730,333) (140,730,333)

W 1,277,410,655 1,277,410,655

(4) Details of other components of equity as of December 31, 2018 and 2017, are as follows:


Gain on valuation of available-for-sale financial assets W - 2,098,218

Gain on valuation of financial assets at FVOCI 3,642,528 -

Gain on foreign currency translation 70,238,416 136,507,292

W 73,880,944 138,605,510


64

19. Retained Earnings

(1) Details of retained earnings as of December 31, 2018 and 2017, are as follows: (In thousands of won) December 31, 2018 December 31, 2017

Legal reserve1 W 19,149,664 19,149,664

Discretionary reserve 218,510 218,510

Retained earnings before appropriation 1,912,680,698 1,806,199,112

W 1,932,048,872 1,825,567,286

1 The Commercial Code of the Republic of Korea requires the Parent Company to appropriate for each financial period, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued capital stock. The reserve is not available for cash dividends payment, but may be transferred to capital stock or used to reduce accumulated deficit. When the accumulated legal reserves (the sum of capital reserves and earned profit reserves) are greater than 1.5 times the paid-in capital amount, the excess legal reserves may be distributed (in accordance with a resolution of the shareholders’ meeting).

(2) The appropriation of retained earnings for the years ended December 31, 2018 and 2017, are as follows:

(In won) 2018 2017 Unappropriated retained earnings carried over from prior year W 1,719,235,040,380 1,518,976,927,151

Adjustment on initial application of new accounting standards (No.1109, No.1115) (52,283,728,259) -

Profit for the year 260,847,172,533 272,535,262,891

Remeasurements of net defined benefit liabilities (15,117,786,970) 14,686,922,338

Retained earnings available for appropriation W 1,912,680,697,684 1,806,199,112,380

Appropriation of retained earnings Cash dividend (2018: W12,000(240%),

2017: W12,000(240%)) (86,964,072,000) (86,964,072,000)

W 1,825,716,625,684 1,719,235,040,380

A dividend in respect of the year ended December 31, 2018, of W12,000 per share, amounting to a total dividend of W86,964 million, is to be proposed at the annual general meeting on March 15, 2019. The separate financial statements do not reflect this dividend payable.


65

20. Operating Segment Information

(1) Details of the Company’s reportable segments and its major customers as of December 31, 2018 are as follows:

Goods or Services Major customers

Plant & Power1

Oil refining, petro chemistry, gas restoring facility, transmission and transformation of electric power, thermoelectric power plant, road, harbor, housing complex development, water disposal related facility and others

Lukoil Uzbekistan Operating Company, SPE.SPA, JIMAH EAST POWER SND BHD, SEONGNAM Park CO.,LTD. and others

Building & House Factory building, general building, state-of-the-art building, apartment house and others

BNS, AMPLUS Asset Development Inc. and others

Others Facilities maintenance and others HYUNDAI MOTOR CO. and others

1 Infra & Environment segment was integrated into Plant & Power segment in the prior period.

(2) Profit or loss by each segment for the years ended December 31, 2018 and 2017, are as follows: (In millions of won) 2018

Plant & Power

Building & House Others Total

Revenue W 2,796,052 2,057,534 552,718 5,406,304 Gross profit 464,034 272,300 42,322 778,656 Property and equipment 7,247 483 33,726 41,456 Depreciation 4,245 242 2,293 6,780 (In millions of won) 2017

Plant & Power

Building & House Others Total

Revenue W 2,833,345 2,475,371 466,109 5,774,825 Gross profit 374,279 411,160 40,835 826,274 Property and equipment 15,274 650 36,910 52,834 Depreciation 5,847 950 1,719 8,516

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

(3) Details of the Company’s external customer attributing to more than 10% of sales for the years ended December 31, 2018 and 2017 are as follows:

(In millions of won) 2018 2017

Sales Percentage Sales Percentage Major customer A Overseas construction W 594,962 11.0% 767,853 13.3%


66

21. Construction Contracts

(1) Details of revenue from continuing operations for the years ended December 31, 2018 and 2017, are as follows:

(In millions of won) 2018 2017 Sales

Construction1 W 4,585,655 4,967,452

Service1 63,253 54,774

Real estate 204,678 286,490

Asset management 552,327 465,862

Others 391 247 W 5,406,304 5,774,825

1 The Company appropriates construction sales for construction and installation of a single asset and multiple assets in cases when the design, technique, ability or final purpose are closely linked or mutually dependent. Design services that are directly related to the construction of an asset, as a result of a design service contract, are appropriated as design sales.

(2) Changes in the Company’s construction contracts for the years ended December 31, 2018 and 2017,

are as follows:

(In millions of won) January 1, 2018 Increase1

Revenue recognized December 31, 2018

Plant & Power W 7,555,029 1,362,863 (2,796,052) 6,121,840 Building & House 3,127,169 2,983,393 (2,057,534) 4,053,028 W 10,682,198 4,346,256 (4,853,586) 10,174,868

(In millions of won) January 1, 2017 Increase1

Revenue recognized December 31, 2017

Plant & Power W 9,440,454 947,920 (2,833,345) 7,555,029 Building & House 2,923,329 2,679,211 (2,475,371) 3,127,169 W 12,363,783 3,627,131 (5,308,716) 10,682,198

1 New contracts and changes of contracts are included.


67

21. Construction Contracts, Continued

(3) Cumulative construction costs and cumulative income of the Company’s contracts on ongoing or completed projects as of December 31, 2018 and 2017, are as follows:

(In millions of won) December 31, 2018

Accumulated contract cost

Accumulated profit

Accumulated

contract revenue

Progress billings

Contract asset 1 Contract liability1

Retentions2

Due from customers for contract work

Advance received

Due to customers for contract work

Plant & Power W 14,872,901 1,874,323 16,747,224 16,740,943 393,022 268,556 539,916 433,639

Building & House 4,280,641 730,375 5,011,016 4,948,591 124,432 136,580 72,102 8,335

W 19,153,542 2,604,698 21,758,240 21,689,534 517,454 405,136 612,018 441,974

1 In addition to the above contract assets and liabilities, contract execution costs of W44,558 million are included in the prepaid expenses in the separate statement of financial position.

2 In the separate statement of financial position, the amount of retention is recorded as long-term other receivables

(In millions of won) December 31, 2017

Accumulated contract cost

Accumulated profit

Accumulated

contract revenue

Progress billings

Contract asset 1 Contract liability1

Retentions1

Due from customers for contract work

Advance received

Due to customers for contract work

Plant & Power W 14,837,529 1,640,560 16,478,089 16,924,225 174,333 394,813 699,651 362,005

Building & House 4,530,505 838,810 5,369,315 5,276,501 181,228 47,423 89,527 19,464

W 19,368,034 2,479,370 21,847,404 22,200,726 355,561 442,236 789,178 381,469

1 In the separate statement of financial position, the amount of retention is recorded as long-term other receivables.


68


(4) Contractual information if contract revenue which exceeds 5% of previous revenues for the years ended December 31, 2018 and 2017, is as follows:

(In millions of won) 2018

Due from customers for

contract work

Trade receivables (receivables from

construction contracts)

Contract

date

Contractual completion

date1 Stage of

completion Gross

amount

Accumulated impairment

loss Gross

amount

Provision for

impairment

Uzbekistan UKAN Project 2015-02-13 2019-01-31 100% W 69,034 - - -

Turkmenistan Ethane Cracker and

PE PP Plant 2014-01-29 2018-09-30 97% - - 2,947 -

Kuwait Al-Zour LNG Import Project 2016-03-30 2021-02-12 43% - - 58 -

Uzbekistan GTL Project 2014-01-07 2020-04-30 45% 259,016 - - -

Venezuela RPLC DEEP

CONVERSION PROJECT [EPC] 2012-06-27 2020-09-30 90% - - 7,138 -

Iraq Karbala Project 2014-04-15 2022-04-02 62% - - 6,580 -

LOTTE Versalis SR Project 2015-08-04 2017-07-31 100% - - 13,369 -

Thailand(3E) Improvement Project

Phase II

2018-04-18 2020-09-08 12% - - - -

Ain Arnat 1200MW CCPP Project 2012-11-25 2019-04-20 92% - - 5,207 -

Jimah East Power 2x1000MW Coal

Fired Power Project

2014-08-29 2019-12-15 83% - - 2,889 -

Melaka 1,800MW-2,400MW CCGT

Power Plant Project

2017-05-30 2021-05-01 18% - - 2,050 -

Algeria Biskra 1600MW Combined

Cycle Power Plant Project

2014-02-19 2019-05-19 68% - - 7,276 -

Algeria Jijel 1600MW Combined


2014-02-19 2020-12-19 70% - - 18,023 -

Takhiatash Power Plant Efficiency

Improvement Project

2016-12-23 2020-08-08 34% - - 23,601 -

Philippine Therma Visayas 2*150MW

CFB Power Plant Project

2014-05-30 2018-03-31 98% - - 23,465 -

Colombia Termotasajero II 160MW

CFPP

2012-01-18 2017-08-01 100% 266 - 255 -

Gaepo Public official Apartment 8th

complex Development Project

2018-04-09 2021-07-31 7% - - 2,165 -

Jinju Chojang District 1BL

Apartment house building

2016-09-19 2019-04-30 85% - - 60,759 -

Bucheon Jungdong Mixed Use

Development

2018-05-31 2022-02-19 5% 3,565 - - -

Yongin Samga 2 District New stay 2016-12-30 2021-03-05 17% - - - -

Yongin Ki-heung station area Multi-

purpose building construction

2014-06-17 2018-08-31 100% - - - -

Gwang-kyo D3 Block Complex 2014-03-27 2018-05-29 100% - - 37,413 -

Gwangmyeong International Design

Cluster

2018-06-27 2021-11-30 5% 4,643 - - -

1 Includes contracts substantially completed but in the process of commissioning or settlement negotiation as of December 31, 2018 are included.


69


(4) Contractual information if contract revenue which exceeds 5% of previous revenues for the years ended December 31, 2018 and 2017, is as follows: continued


Due from customers for

contract work

Trade receivables (receivables from

construction contracts)

Contract

date

Contractual completion

date1 Stage of

completion Gross

amount

Accumulated impairment

loss Gross

amount

Provision for

impairment

Uzbekistan UKAN Project 2015-02-13 2019-01-31 76% W - - - -

Turkmenistan Ethane Cracker and

PE PP Plant 2014-01-29 2018-09-30 92% 32,497 - 77,007 -

Kuwait Al-Zour LNG Import Project 2016-03-30 2021-02-12 17% - - - -

Uzbekistan GTL Project 2014-01-07 2020-04-30 20% - - 32,501 -

Venezuela RPLC DEEP

CONVERSION PROJECT [EPC] 2012-06-27 2018-12-31 87% 4,032 - 7,019 -

Iraq Karbala Project 2014-04-15 2018-11-27 44% - - 59,074 -

UAE Ruwais Lube Base Oil Project 2010-07-13 2016-08-15 100% 4,630 4,163 -

LOTTE Versalis SR Project 2015-08-04 2017-07-31 99% - - - -

Ain Arnat 1200MW CCPP Project 2012-11-25 2019-04-20 83% - - - -

Jimah East Power 2x1000MW Coal

Fired Power Project

2014-08-29 2019-12-15 58% - - 11,124 -

Algeria Biskra 1600MW Combined


2014-02-19 2018-05-19 61% 302 - 14,692 -

Algeria Jijel 1600MW Combined


2014-02-19 2018-12-19 61% 4,401 - 13,702 -

Melaka 1,800MW-2,400MW CCGT

Power Plant Project

2017-05-30 2021-05-01 1% 4,227 - - -

Takhiatash Power Plant Efficiency

Improvement Project

2016-12-23 2020-08-08 3% - - 14,814 -

Philippine Therma Visayas 2*150MW

CFB Power Plant Project

2014-05-30 2018-03-31 96% - - 15,177 -

Colombia Termotasajero II 160MW

CFPP

2012-01-18 2017-08-01 99% 817 - 2,580 -

Jinju Chojang District 1BL

Apartment house building

Construction

2016-09-19 2019-04-30 50% - - 35,878 -

Yongin Ki-heung station area Multi-

purpose building construction

2014-06-17 2018-08-31 71% 50,216 - - -

Gwang-kyo D3 Block Complex

facilities

2014-03-27 2018-05-31 85% - - 96,090 - 1 Includes substantially completed but in the process of commissioning or settlement negotiation as of December 31, 2017 are included.


70

21. Construction Contracts, Continued (5) As of January 1, 2018 and December 31, 2017, the estimated total revenue and estimated total costs

for contracts in progress have changed. Details of changes in estimated total contract costs, profits or loss for the years ended December 31, 2018 and 2017 and the succeeding year, and the impact on due from customers for contract work are as follows:


Changes in estimated

total contract revenue1

Changes in estimate

total contract costs1

Impact on profit

or loss for the year

Impact on profit

or loss for the

succeeding period

Changes in assets and

liabilities (Due from

customer/Due to customer

amount)

Provisions for

expected losses

Plant & Powers W 265,142 70,848 142,695 51,599 142,695 44,217 Building & House 159,723 133,147 30,917 (4,341) 30,917 -

W 424,865 203,995 173,612 47,258 173,612 44,217


Changes in estimated

total contract revenue1

Changes in estimate

total contract costs1

Impact on profit

or loss for the year

Impact on profit

or loss for the

succeeding period

Changes in assets and

liabilities (Due from

customer/Due to customer

amount)

Provisions for

expected losses

Plant & Powers W (679,576) (356,712) (130,166) (192,698) (130,166) 31,785 Building & House 227,015 122,749 100,104 4,162 100,104 51

W (452,561) (233,963) (30,062) (188,536) (30,062) 31,836 1 Effect of foreign exchange rate fluctuation is included.


71

21. Construction Contracts, Continued (6) The Company recognizes a provision for construction warranties and changes in the warranty reserve

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

(In millions of won) 2018 2017 Provision for

construction warranty

Provision for construction loss

Provision for litigation

Provision for construction

warranty

Beginning balance W 107,415 - - 90,747 Provision(Reversal) 26,508 16,322 15,047 36,598 Payment (16,663) - (154) (19,803) Effect of conversion - 31,836 - -

Others 63 - - (127) Ending balance W 117,323 48,158 14,893 107,415

(7) Details of joint construction project as of December 31, 2018, are as follows:


Share of joint construction

project Ownership(%) Lead construction

contractor RPLC DEEP CONVERSION PROJECT [EPC] W 922,565 27.6


Columbia BELLO 70,843 20 HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD.

Singapore Sembcorp ICW 57,471 30 HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD.

Iraq Karbala Project 745,376 11 HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD.

Lo Te - Rach Soi Highway Construction Pr 23,631 30

KUMHO INDUSTRIAL CO., LTD.

Gaepo Public official Apartment 8th complex Development Project 692,861 26.7


W 2,512,747


72


(8) Performance obligation and Revenue recognition Policies Revenue is measured on the basis of the contracted consideration of the customer. The company recognises revenue when control of goods or services is transferred to the customer. The characteristics of the performance obligation in the contract with the customer, the timing of performance, significant payment terms and the associated revenue recognition policies are as follows:

Product/service

Classification

Characteristics of goods

or services, Timing of

performance obligations,

Significant payment

terms

Revenue recognition

in accordance with K-

IFRS 1115 (Application

after

1 January 2018)

Revenue recognition in accordance with K-IFRS

1018 (Application before 1 January 2018)

Construction

contract

The scope of work for

construction services is to

build plants, houses,

general buildings, etc, The

work is carried out after

the contract and the

collection and payment

services are carried out

through qualified

evidence.

Construction services

are accounted for as

progress because the

company transfers

control of goods or

services to the

customer over time.

If we can measure the performance of the

construction contract reliably, we recognized

revenue based on progress. Progress was

measured by surveying the degree of completion

of the performance. If the performance of the

construction contract cannot be measured reliably,

revenue was recognized within the scope of

contract cost that was highly recoverable. Contract

costs were recognised as expenses for the period

in which they occurred. The expected loss in the

contract was immediately recognized as an

expense.

Other Contracts

The scope of work for

asset management

service is comprehensive

management of the asset,

and the business

performance is carried out

after the contract and the

collection and payment

services are conducted

through qualified

evidence.

Asset management

services are recognized

as revenue at that point

because they transfer

control at a particular

point in time.

Revenue is recognized when the amount of

revenue can be measured reliably, the future

economic benefits are likely to flow to the

company, and certain specific requirements of the

company activities are met.


73

22. Selling and Administrative Expenses and Breakdown of Expenses by Nature (1) Selling and administrative expenses for the years ended December 31, 2018 and 2017, are as follows:

(In thousands of won) 2018 2017 Salaries W 146,051,291 131,268,638 Retirement and severance 13,976,494 14,317,975

Employee benefits 27,645,481 26,883,496

Depreciation 1,484,248 1,590,001

Taxes and dues 4,522,321 4,087,587

Development expenses 1,055,650 564,226

Advertising expenses 2,819,489 3,001,269

Commission expenses 21,519,402 20,179,059

Electronic data processing expenses 8,779,733 5,823,159

Costs for prospective projects 32,979,280 22,677,848

Rental expenses 8,275,588 6,246,728

Bad debts 4,971,789 38,985,390

Amortization 40,739,542 49,498,044

Others 12,766,005 13,520,563

W 327,586,313 338,643,983 (2) Expenses by nature (cost of sales and selling and administrative expenses in the separate statement of

comprehensive income) for the years ended December 31, 2018 and 2017, are as follows:


Raw material expenses W 1,488,838,980 1,740,443,416

Changes in other inventories 53,521,124 (270,553,067)

Outsourcing expenses 2,236,626,093 2,626,620,880

Employee benefit expenses1 648,928,102 635,264,332

Commission expenses 146,376,087 145,714,607

Costs for prospective projects 32,979,280 22,677,848

Depreciation and amortization 50,450,150 60,217,939

Rental expenses 26,445,505 27,457,763

Taxes and dues 54,020,232 60,538,534

Insurance expenses 13,123,642 7,001,822

Others 203,925,195 231,810,775

W 4,955,234,390 5,287,194,849 1 The amounts include salaries, retirement and severance benefits and employee benefits.


74

23. Other Income and Expenses Other income and expenses for the years ended December 31, 2018 and 2017, are as follows:


Other income Gain on foreign currency transaction W 29,980,462 35,361,984 Gain on foreign currency translation 23,661,973 44,415,956

Gain on disposal of property and equipment 542,440 1,103,525

Gain on disposal of intangible assets 65,627 -

Gain on disposal of investment property 839,142 622,401

Rental revenue - 7,771

Reversal of other impairment loss 12,592,366 756,165

Others 5,915,201 10,028,968

W 73,597,211 92,296,770


Other expense

Loss on foreign currency transaction W 28,691,678 77,265,489

Loss on foreign currency translation 13,225,765 63,214,746

Impairment loss of investment property - 9,452,578

Impairment loss of intangible assets 2,010,167 -

Loss on disposal of property and equipment 375,803 687,100

Loss on disposal of intangible assets 1,100 -

Other impairment loss 42,878,562 44,655,620

Others 23,104,781 18,055,223

W 110,287,856 213,330,756


75

24. Finance Income and Costs

Finance income and costs for the years ended December 31, 2018 and 2017, are as follows:


Finance income Gain on foreign currency transaction W 905,157 5,671,022 Gain on foreign currency translation 4,884,670 3,951,483

Interest income 58,738,436 45,524,135

Dividend income 14,882,765 28,934,438

Gain on valuation of financial assets at FVPL 5,969,088 -

Gain on disposal of subsidiaries and associates 22,798 6,853,736

W 85,402,914 90,934,814


Finance costs

Loss on foreign currency transaction W 20,000 509,083

Loss on foreign currency translation 5,667,343 35,243,874

Interest expense 8,120,621 9,815,033

Loss on disposal of financial assets at FVPL 27,397 -

Loss on valuation of financial assets at FVPL 835,586 -

Loss on disposal of available-for-sale financial assets - 1,068,474

Impairment loss on available-for-sale financial assets - 3,792,120

Loss on disposal of subsidiaries and associates 10,597 -

Impairment loss on subsidiaries and associates 17,277,199 25,922,473

W 31,958,743 76,351,057


76

25. Income Tax Expenses (1) Income tax expenses for the years ended December 31, 2018 and 2017, are as follows:


Current tax W 93,116,159 161,217,995

Adjustment for prior years 113,296,947 7,385,541

Deferred tax due to temporary differences (21,648,591) (55,614,802)

Deferred tax charged directly to equity 4,050,819 (4,343,938) Adjustment on initial application of new accounting standards (No.1109, No.1115) 18,160,563 -

Income tax expenses W 206,975,897 108,644,796 (2) The tax effect relating to equity (components of other comprehensive income) for the years ended

December 31, 2018 and 2017, is as follows:

(In thousands of won) 2018 2017 Before tax Tax effect After tax Before tax Tax effect After tax Changes in the fair value of available-for-sale financial assets W - - - 2,930,341 (758,542) 2,171,799

Changes in the fair value of financial assets at FVOCI 4,820,881 (1,178,353) 3,642,528 - - -

Remeasurements of net defined benefit liabilities (41,576,495) 10,162,417 (31,414,078) (21,988,077) 5,691,786 (16,296,291)

W (36,755,614) 8,984,064 (27,771,550) (19,057,736) 4,933,244 (14,124,492) (3) Reconciliation between profit before income tax and income tax expense for the years ended December

31, 2018 and 2017, is as follows:


Profit before income tax W 467,823,070 381,180,059 Tax at domestic tax rates applicable to profit in the respective countries 118,289,344 91,783,574

Adjustments:

Expenses not deductible for tax purposes 5,448,242 2,921,177

Tax credits (3,263,118) (40,915,313)

Current adjustments for prior years 113,296,947 7,385,541

Others (26,795,518) 47,469,817

Income tax expense W 206,975,897 108,644,796

Average effective tax rate 44.2% 28.5%


77

25. Income Tax Expenses, Continued (4) The analysis of deferred tax assets and liabilities as of December 31, 2018 and 2017, are as follows:

(In thousands of won) December 31, 2018 December 31, 2017 Deferred tax assets

Deferred tax asset to be recovered after more than 12 months W 101,275,614 87,620,196

Deferred tax asset to be recovered within 12 months 87,567,202 81,310,338

W 188,842,816 168,930,534

Deferred tax liabilities

Deferred tax liabilities to be recovered after more than 12 months (57,932,064) (59,750,039)

Deferred tax liabilities to be recovered within 12 months (13,601,769) (13,520,104)

W (71,533,833) (73,270,143)

W 117,308,983 95,660,391 (5) The movement in deferred tax assets and liabilities during the period, without taking into consideration

the offsetting of balances within the same tax jurisdiction, is as follows:


2017

Beginning balance

Statement of profit or

loss Equity

Ending balance

Beginning

balance

Statement of profit or

loss Equity Ending balance

Accrued income W (7,470,301) (1,962,216) - (9,432,517)

(6,682,301) (788,000) - (7,470,301)

Provision for impairment 61,210,132 7,315,234 - 68,525,366

36,964,001 24,246,131 - 61,210,132

Accrued expenses 3,063,521 (30,510) - 3,033,011

3,319,384 (255,863) - 3,063,521

Provisions 40,375,393 4,401,617 - 44,777,010 28,661,206 11,714,187 - 40,375,393 Available-for-sale financial assets 561,952 (561,952) - -

(303,594) 1,009,533 (143,987) 561,952 Orders on hand (10,984,310) 9,058,078 - (1,926,232)

(20,831,154) 9,846,844 - (10,984,310)

Others 8,904,004 (622,478) 4,050,819 12,332,345 (1,081,953) 14,185,908 (4,199,951) 8,904,004

W 95,660,391 17,597,773 4,050,819 117,308,983 40,045,589 59,958,740 (4,343,938) 95,660,391

Realization of the future tax benefits related to deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income within the period during which the temporary differences reverse, the outlook of the Korean economic environment and the overall future industry outlook. Management periodically considers these factors in reaching its conclusion and recognized deferred tax assets since all the future (deductible) tax benefits are determined to be realizable, except for investment in associates which the Company has no plan of disposing in the expectable future as at December 31, 2018.


78

26. Commitments and Contingencies (1) The payment guarantees provided to others as of December 31, 2018, are as follows:

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

(In thousands of won) Beneficiary Guarantee limit Execution

amount

Redevelopment reconstruction joint guarantee

GWANGJU GAKHWA HOUSING COOPERATIVE and others W 165,100,000 127,000,000

SOC cash deficiency support INCHEON GIMPO HIGHWAY and others 6,480,000 - Intermediate payment group loans

Anyang Pyeongchon Officetel and others 868,330,135 729,003,798

Defective guarantee POSCO ENGINEERING CO., LTD. 163,472 163,472 (b) Details of guarantees provided by the Company for the PF borrowings of developer as of December 31,

2018, which are not included in (a) above, are as follows:


Business area Type of bonds institution

Guarantee limit

Execution amount

Maturity date

Description of guarantee Type

Gwangju Other W 39,000,000 30,000,000 2020-10-23 Joint guarantee ABSTB

Gyeongsangbuk-do Other 20,400,000 17,000,000 2020-10-23 Joint guarantee ABSTB

Gyeonggi-do Other 48,000,000 40,000,000 2019-08-02 Joint guarantee ABCP

Daegu Other 15,000,000 12,500,000 2022-12-14 Joint guarantee ABS

Daegu Other 15,000,000 12,500,000 2022-12-14 Joint guarantee Loan Daegu Other 96,000,000 80,000,000 2022-06-17 Joint guarantee ABS Gyeonggi-do Other 52,000,000 40,000,000 2020-03-17 Joint guarantee ABSTB Gyeonggi-do Other 65,000,000 50,000,000 2022-02-27 Joint guarantee ABSTB Seoul Other 149,000,000 149,000,000 2019-03-15 Debt acceptance ABL Sejong Other 48,000,000 40,000,000 2021-01-25 Joint guarantee Loan Gangwon-do Other 101,530,000 78,100,000 2019-04-05 Joint guarantee ABCP

Gyeonggi-do Other 84,000,000 70,000,000 2021-09-14 Joint guarantee ABS Gyeonggi-do Other 36,000,000 30,000,000 2020-02-20 Joint guarantee ABSTB Gyeonggi-do Other 39,000,000 30,000,000 2020-10-07 Joint guarantee ABSTB Gyeonggi-do Other 91,000,000 70,000,000 2020-10-07 Joint guarantee ABSTB

W 898,930,000 749,100,000

In addition, the Company provides joint guarantee of W2,290,607 million for housing guarantee and business performance guarantee of HOUSING & URBAN GUARANTEE CO. and CONSTRUCTION GUARANTEE COOPERATIVE issued by the partners of the Company.

(c) The Company provides arrangements of conditional liabilities (limit: W5,368,000 million, execution: W3,573,906 million) which exists to certain projects(Pangyo Daejang-dong Apartment house building Construction and others) for completion of construction.


79

26. Commitments and Contingencies, Continued

(2) Collateral provided to others as of December 31, 2018, are as follows: As of December 31, 2018, the Company provided 6 checks (amount issued: W45,996 million) and 7 blank checks as collateral for performance guarantee, performance guarantee of advance received and warranty guarantee. In addition, the Company provides W85 million of deposits as collateral to SEOUL GUARANTEE INSURANCE COMPANY, related to various license deposits, and W1,338 million of deposit as collateral to HOUSING & URBAN GUARANTEE CORPORATION, related to Gaepo Public official Apartment 8th complex Development Project. Also, the Company provides W1,100 million of deposits as collateral to GANGNAM N TOWER project for completion of construction, and W737 million are pledged for leasehold deposits of G tower. Additionally, the Company provided deposit of W10,133 million of investment in associates and W16,349 million of financial assets at fair value are provided as collateral with regards to guarantees of the investee company.

(3) Details of guarantees provided to the Company as of December 31, 2018, are as follows: (In thousands of won and thousands of US dollar)

Guarantor Guarantee Amount Description of Guarantee

POSCO ENGINEERING CO., LTD. W 938,138 Warranty guarantee and others SEOUL GUARANTEE INSURANCE COMPANY W 319,523,192

Performance guarantee and others

ENGINEERING GURANTEE INSURANCE W 257,423,005

Performance guarantee and others1

CONSTRUCTION GUARANTEE COOPERATIVE W 106,453,247

Performance guarantee and others

HOUSING & URBAN GUARANTEE CO. W 1,204,778,253

Housing distribution guarantee and warranty guarantee

THE EXPORT-IMPORT BANK OF KOREA and others $ 2,250,243

Performance guarantee, guarantee for refund of advance receipts

W 1,889,115,835

$ 2,250,243

1 The Company has provided collateral for the investment related to engineering guarantee insurance.


80


(4) Contingencies as of December 31, 2018, are as follows: As of December 31, 2018, the Company has a comprehensive limit agreement amounting to USD 1,918 million with a financial institution for the payment guarantee and purchase L/C (exercised amount: payment guarantee of USD 584 million and purchase L/C of USD 47 million) and has a limit agreement amounting to USD 2,562 million (exercised amount: USD 1,619 million) for performance bond and guarantee for refund of advance received. Other key contingencies are subscribed as below.

Details of major commitments with financial institutions as of December 31, 2018, are as follows:

(In thousands of won and thousands of US dollar )

Financial institution Guarantee

amount Execution

amount Trade receivables factoring discount

KEB HANA BANK and others W 615,000,000 -

Notes receivable factoring discount SHINHAN BANK and others W 220,000,000 -

Foreign currency receivable factoring limit

DEUTSCHE BANK and others $ 40,000 -

Derivative instruments SHINHAN BANK $ 20,000 -

The Company derecognizes the trade receivables from the financial statements and recognizes a gain or loss on disposal on the date when substantially all the risks and rewards are transferred. There is no transferred trade receivables outstanding as of December 31, 2018.

(5) Major insurance status

As of December 31, 2018, the Company has construction-related insurance for up to amount W5,080,267 million and insurance on goods for up to amount W1,300,190 million which are provided by HYUNDAI MARINE & FIRE INSURANCE CO., LTD. and others.


81


(6) Others as of December 31, 2018, are as follows:

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

Debentures 6-2 Debentures 7-1, 7-2 Amount ￦100 billion ￦200 billion

Debt ratio Managing the ratio below 500% Managing the ratio below 500%

Security right setting limit Less than 200% of the equity as of previous year end

Less than 500% of the equity as of previous year end

Asset disposal restriction Restricted to dispose more than ￦5 trillion

Restricted to dispose 100% of total assets

As of December 31, 2018, the Company has 4 pending litigations and arbitration cases overseas as a defendant. The total value of claims for damages against the Company amounts to W27,295 million. In addition, the Company has 10 domestic cases with claims for damages amounting to W22,530 million. The outcome of the cases and the effect on the separate financial statements could not be reasonably estimated as of the end of the reporting period.


82

27. Related Party Transactions (1) List of related parties as of December 31, 2018, and December 31, 2017 are as follows: 1) As of December 31, 2018 and December 31, 2017, the Parent Company is HYUNDAI ENGINEERING &

CONSTRUCTION CO., LTD.. 2) The subsidiaries as of December 31, 2018 and 2017, are as follows:

Percentage of ownership (%) December 31, 2018 December 31, 2017

HYUNDAI ENGINEERING PAKISTAN(PRIVATE) LIMITED 100.00 100.00

GALING POWER & ENERGY CONSTRUCTION CO. INC. 100.00 100.00

HYUNDAI ENGINEERING MEXICO, S. DE R.L DE C.V. 100.00 100.00

HYUNDAI ENG AMERICA INC. 100.00 100.00

HYUNDAI AMCO MEXICO S. DE R.L1 100.00 100.00

HYUNDAI ENGINEERING INDIA PRIVATE LIMITED 100.00 100.00

HYUNDAI ENGINEERING(BEIJING) CO., LTD. (formerly, AMCO CHINA(BEIJING) CO., LTD.)

90.00 90.00

AMCO CHINA(RIZHAO) CO.,LTD. 2 100.00 100.00

HYUNDAI ENGINEERING RUS. LLC 100.00 100.00

HYUNDAI ENGINEERING DEUTSCHLAND GMBH 100.00 100.00

HYUNDAI ENGINEERING BRASIL CONSTRUCTORAE GESTAO DE PROJETOS LTDA.

100.00 100.00

HYUNDAI ENGINEERING INSAAT TURIZM SANAYI VE TICARET LIMITED SIRKETI

100.00 100.00

HYUNDAI ENGINEERING CZECH S.R.O. 100.00 100.00

HYUNDAI ENGINEERING SLOVAKIA S.R.O. 100.00 100.00

PT. HEIN GLOBAL UTAMA 67.00 67.00

HYUNDAI ENGINEERING MALAYSIA SDN BHD 100.00 100.00

HEC INDAI LLP 100.00 100.00 1 A subsidiary of HYUNDAI ENG AMERICA INC 2 A subsidiary of HYUNDAI ENGINEERING CHINA(BEIJING)CO.,LTD. (Formerly, AMCO CHINA(BEIJING) CO., LTD.)


83

27. Related Party Transactions, Continued 3) Details of associates and other related parties that have sales and other transactions with the Company

or have receivables and payables balances as of December 31, 2018 are as follows:

Related party Investment companies HYUNDAI GLOVIS CO., LTD. with significant influence KIA MOTORS CORPORATION HYUNDAI MOBIS CO., LTD. Associates HYUNDAI ENGINEERING (THAILAND) CO., LTD. LHT INTERNATIONAL ENGINEERING JOINT STOCK COMPANY DAMYANG GREEN DEVELOPMENT CO., LTD. INCHEON GANGHWA INDUSTRIAL COMPLEX CO., LTD. KM ENERGY CO., LTD. SEJONG MIRAE INDUSTRIAL COMPLEX CO., LTD. THE HS-CITY EXPRESSWAY HAEVICHI COUNTRY CLUB., LTD. HYUNDAI ENGINEERING(CAMBODIA) CO., LTD. Other related parties1 HYUNDAI MOTORS COMPANY HYUNDAI STEEL COMPANY Companies included in THE HYUNDAI MOTOR COMPANY GROUP.

1 The Company and the Parent Company are included in THE HYUNDAI MOTOR COMPANY GROUP


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27. Related Party Transactions, Continued (2) Sales and purchases with related parties for the years ended December 31, 2018 and 2017, are as follows:


Sales Purchase Acquisition of non-

current assets Disposal of non-current assets

Parent company HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD. W 25,203,947 61,160,463 - -

Companies with significant influence KIA MOTORS CORPORATION 152,422,905 449,005 31,565 - HYUNDAI MOBIS CO., LTD. 32,207,791 1,610,736 - - HYUNDAI GLOVIS CO., LTD. 10,545,965 46,650,460 - 46,455 Subsidiaries AMCO CHINA(BEIJING) CO., LTD. and others 15,915,166 1,956,652 - -

Associates HYUNDAI ENGINEERING (THAILAND) CO., LTD. and others 81,788 369,483 - -

Others HYUNDAI MOTORS COMPANY 556,171,174 8,235,073 211,203 - HYUNDAI STEEL COMPANY 118,623,055 79,232,404 - - HYUNDAI WIA 25,569,684 86,005 - - HYUNDAI DYMOS INC and others 124,433,517 40,917,838 2,135,770 -

W 1,061,174,992 240,668,119 2,378,538 46,455 (In thousands of won) 2017

Sales Purchase Acquisition of non-

current assets Disposal of non-current assets

Parent company HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD. W 34,782,586 17,896,618 24,957 -

Companies with significant influence KIA MOTORS CORPORATION 150,431,650 364,622 - - HYUNDAI MOBIS CO., LTD. 86,049,913 1,712,689 - - HYUNDAI GLOVIS CO., LTD. 21,973,804 19,209,481 - - Subsidiaries AMCO CHINA(BEIJING) CO., LTD. and others 29,587,817 2,155,694 - -

Associates HYUNDAI ENGINEERING (THAILAND) CO., LTD. and others 35,837,529 550,535 - -

Others HYUNDAI MOTORS COMPANY 645,144,143 7,294,793 273,422 - HYUNDAI STEEL COMPANY 147,736,701 64,657,313 - - HYUNDAI WIA 46,383,563 895,343 - - HYUNDAI DYMOS INC and others 78,391,662 75,142,753 5,636,874 -

W 1,276,319,368 189,879,841 5,935,253 -

The Company provides asset management and construction services to related parties, and concludes real estate leasing and brand use contracts, and is provided with logistics and transportation services.


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27. Related Party Transactions, Continued (3) Outstanding balances arising from sales/purchases of goods and services as of December 31, 2018 and

2017 are as follows: (In thousands of won) December 31, 2018

Trade receivables Loans

Other receivables

Trade payables

Other payables

Parent company HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD. W 3,906,613 - 11,899,369 9,295,190 6,225,789

Companies with significant influence KIA MOTORS CORPORATION 45,236,047 - 10,000 - 17,323 HYUNDAI MOBIS CO., LTD. 4,526,620 - 26,908 305 475,437 HYUNDAI GLOVIS CO., LTD. 535,114 - - 10,041,050 - Subsidiaries AMCO CHINA (BEIJING) CO., LTD. and others - 2,073,600 69,502,158 - 208,470

Associates HYUNDAI ENGINEERING (THAILAND) CO., LTD. and others 6,219,678 19,075,628 5,198,740 - 12,351

Others HYUNDAI MOTORS COMPANY 170,838,021 - 1,179,428 1,716 2,018,089 HYUNDAI STEEL COMPANY 37,600,746 - - 32,256,021 565,014 HYUNDAI WIA 16,710,547 - 637,882 - 919 HYUNDAI DYMOS INC and others 41,846,370 - 2,935,750 2,177,279 3,614,532

W 327,419,756 21,149,228 91,390,235 53,771,561 13,137,924 (In thousands of won) December 31, 2017

Trade receivables Loans

Other receivables

Trade payables

Other payables

Parent company HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD. W 3,542,544 - 14,333,089 723,629 5,672,759

Companies with significant influence KIA MOTORS CORPORATION 50,394,495 - 14,177 - 20,907 HYUNDAI MOBIS CO., LTD. 29,966,050 - 21,136 - 533,854 HYUNDAI GLOVIS CO., LTD. 5,332,967 - 520 711,049 - Subsidiaries AMCO CHINA (BEIJING) CO., LTD. and others - 3,526,315 46,982,514 720,565

Associates HYUNDAI ENGINEERING (THAILAND) CO., LTD. and others 12,662,073 19,049,030 5,279,083 - 16,938

Others HYUNDAI MOTORS COMPANY 164,928,779 - 1,112,754 - 1,840,668 HYUNDAI STEEL COMPANY 50,969,212 - 251 11,879,415 320,028 HYUNDAI WIA 18,782,853 - 142,095 - - HYUNDAI DYMOS INC and others 16,264,943 - 4,230,645 7,429,848 6,220,119

W 352,843,916 22,575,345 72,116,264 20,743,941 15,345,838


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27. Related Party Transactions, Continued In addition, as of December 31, 2018, due from customers for contract work and due to customers for contract work recognized by using the percentage-of-completion method on uncompleted construction contracts with related parties amounted to W18,225 million (December 31, 2017: W40,386 million) and W43,742 million (December 31, 2017: W50,008 million), respectively.

As of December 31, 2018, the Company has provision for impairment of W24,102 million (December 31, 2017: W 24,291 million) for the loans and other receivables of W 24,243 million (December 31, 2017: W 24,323 million) to HYUNDAI ENGINEERING (THAILAND) CO., LTD., an associate. As of December 31, 2018, the Company has provision for impairment of W25 million (December 31, 2017: W 25 million) for the loans and other receivables of W 27 million (December 31, 2017: W 25 million) to HYUNDAI ENGINEERING (CAMBODIA) CO., LTD., an associate.


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27. Related Party Transactions, Continued

(4) Financial transaction with related parties as of December 31, 2018 and 2017 are as follows: (In thousands of won) December 31, 2018 Loans

Investment Dividend

Lease Withdrawal Translation Payment Receipt Parent company and companies with significant influence

HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD. W - - - - 35,196,000 -

HYUNDAI GLOVIS CO., LTD. - - - - 10,640,880 - KIA MOTORS CORPORATION - - - - 8,520,240 - HYUNDAI MOBIS CO., LTD. - - - - 8,520,240 - Associates HYUNDAI ENGINEERING(THAILAND) CO., LTD. - - - - - -

HYUNDAI ENGINEERING(CAMBODIA) CO., LTD. - - 1,163 - - -

DONGBUK LRT CO., LTD. - - - 2,464,000 - - TINA HYDROPOWER LIMITED - - - 384,779 - - SMART VALLEY INDUSTRIAL COMPLEX CO., LTD. - - - 200,000 - -

LHT INTERNATIONAL ENGINEERING JOINT STOCK COMPANY - - - - - 17,788

Subsidiaries PT. HEIN GLOBAL UTAMA 2,073,600 - - - - - HYUNDAI ENGINEERING MALAYSIA SDN BHD - 2,357,080 - - - -

HYUNDAI ENGINEERING DEUTSCHLAND GMBH - 1,169,235 - - - 993,696

GALING POWER & ENERGY CONSTRUCTION CO. INC. - - - 7,546,989 - -

HYUNDAI ENGINEERING BRASIL CONSTRUTORA E GESTAO DE PROJETOS LTDA. - - - 1,176,628 - -

HYUNDAI ENG AMERICA INC - - - - - 1,292,280 HYUNDAI ENGINEERING MEXICO, S. DE R.L. DE C.V. - - - - - 5,144,697

HYUNDAI ENGINEERING(BEIJING) CO., LTD. - - - - - 2,708,936

HEC INDIA LLP - - - - - 4,553,010


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27. Related Party Transactions, Continued

(4) Financial transaction with related parties as of December 31, 2018 and 2017 are as follows:, Continued (In thousands of won) December 31, 2017 Loans

Investment Dividend

Lease Withdrawal Translation Payment Receipt Parent company and companies with significant influence

HYUNDAI ENGINEERING & CONSTRUCTION CO., LTD. W - - - - 35,196,000 -

KIA MOTORS CORPORATION - - - - 10,640,880 - HYUNDAI MOBIS CO., LTD. - - - - 8,520,240 - HYUNDAI GLOVIS CO., LTD. - - - - 8,520,240 - Associates HYUNDAI ENGINEERING(THAILAND) CO., LTD. - - - - - -

HYUNDAI ENGINEERING(CAMBODIA) CO., LTD. 26,598 - (1,163) - - -

UZLITI Engineering - - - 25,378 - - CHONGJU OKSAN2 INDUSTRIAL COMPLEX DEVELOPMENT CO., LTD. - - - 2,000 - -

LHT INTERNATIONAL ENGINEERING JOINT STOCK COMPANY - - - - - 19,316

Subsidiaries HYUNDAI ENGINEERING MALAYSIA SDN BHD 2,512,400 - (155,320) - - -

HYUNDAI ENGINEERING DEUTSCHLAND GMBH 1,184,937 - (15,703) - - 831,549

HEC INDIA LLP - - - 190,590 - - GALING POWER & ENERGY CONSTRUCTION CO. INC. - - - 23,484,267 - -

HYUNDAI ENG AMERICA INC - - - - - 1,244,870 HYUNDAI ENGINEERING MEXICO, S. DE R.L. DE C.V. - - - - - 13,075,238

HYUNDAI ENGINEERING(BEIJING) CO., LTD. - - - - - 8,729,435

HYUNDAI ENGINEERING SLOVAKIA S.R.O. - - - - - 948,583

HYUNDAI ENGINEERING INDIA PRIVATE LIMITED - - - - - 516,017

HYUNDAI ENGINEERING RUS. L.L.C. - - - - - 900,486 HYUNDAI ENGINEERING CZECH S.R.O. - - - - - 2,301,697


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27. Related Party Transactions, Continued (5) Details of guarantees and collateral provided to related parties as of December 31, 2018, are as follows:

(In thousands of won, US dollar, MYR, PHP)

Guarantee Guaranteed by Guaranteed

amount

Foreign-currency payment guarantee

HYUNDAI ENGINEERING MALAYSIA SDN. BHD

UNITED OVERASEAS BANK and others MYR 433,914

GALING POWER & ENERGY CONSTRUCTION CO. INC

AUSTRALIA AND NEW ZEALAND BANK PHP 1,367,605

PT.HEIN GLOBAL UTAMA ICBC and others USD 20,089

GALING POWER & ENERGY CONSTRUCTION CO. INC KEB HANA BANK USD 5,066

Cash deficiency support and others The HS-CITY EXPRESSWAY

NONGHYUP BANK and others KRW 3,512,556

(6) The compensation paid or payable to key management for employee services amounted to W21,478

million (2017: W21,674 million) for the year ended December 31, 2018.


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28. Supplemental Cash Flow Information (1) Reconciliations between operating profit and net cash inflow (outflow) from operating activities for the

years ended December 31, 2018 and 2017, are as follows:

(In thousands of won) 2018 2017 Expenses not involving cash outflows

Depreciation W 6,876,688 8,583,668 Amortization 43,573,461 51,634,271 Accrual for defined benefit obligation 29,893,870 33,954,341 Other long-term employee benefits 1,968,958 973,171 Loss on foreign currency translation 18,893,108 98,458,620 Impairment loss 4,971,789 38,985,390 Other impairment loss 42,878,562 44,655,620 Provision for expected loss 31,321,852 12,729,016 Provision for construction warranties 27,246,205 36,598,041 Impairment loss on inventories 549,230 1,684,097 Loss on disposal of property, plant and equipment 375,803 687,100 Impairment loss on investment assets - 9,452,578 Loss on disposal of intangible assets 1,100 - Loss on disposal of available-for-sale financial assets - 1,068,474 Impairment loss on available-for-sale financial assets - 3,792,120 Loss on disposal of subsidiaries and associates 10,597 - Impairment loss on subsidiaries and associates 17,277,199 25,922,473 Interest expense 8,120,621 9,815,033 Income tax expense 206,975,897 108,644,795 Miscellaneous loss 123,765 10,118,473 Loss on disposal of financial assets at FVPL 27,397 - Loss on valuation of financial assets at FVPL 835,586 - Provision for litigation 15,047,099 - Impairment loss on disposal of intangible assets 2,010,167 - W 458,978,954 497,757,281

Income not involving cash inflows Interest income W 58,738,436 45,524,135 Gain on foreign currency translation 28,546,643 48,367,439 Gain on disposal of property, plant and equipment 542,440 1,103,525 Gain on disposal of intangible assets 65,627 - Gain on disposal of investment assets 839,142 622,400 Reversal of provision for construction losses 15,000,052 3,572,743 Reversal of provision for expected loss 739,115 - Gain on valuation of financial assets at FVPL 5,969,088 - Gain on disposal of subsidiaries and associates 22,798 6,853,736 Reversal of other impairment loss 12,592,366 756,165 Dividend income 14,882,765 28,934,438 Others - 4,500,000 W 137,938,472 140,234,581


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28. Supplemental Cash Flow Information, Continued (2) Significant transactions not affecting cash flows for the years ended December 31, 2018 and 2017, are as

follows:

(In thousands of won) 2018 2017 Reclassification of current portion of debentures W 100,000,000 - Reclassification of long-term financial instruments 1,130,086,000 245,368,618

(3) Changes in liabilities arising from financial activities for the year ended December 31, 2018, are as follows:

(In thousands of won) Non-cash changes

Beginning Balance Cash flows Reclassification

Amortization

Ending Balance

Dividend payable W 1,590 (86,963,666) 86,964,072 - 1,996 Current portion of debentures - - 100,000,000 (65,984) 99,934,016 Debentures 299,419,420 - (100,000,000) 288,964 199,708,384 W 299,421,010 (86,963,666) 86,964,072 222,980 299,644,396


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29. Financial Risk Management

The Company’s activities are exposed to a variety of financial risks: market risk (including foreign exchange risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize any adverse effects on the financial performance of the Company.

(1) Foreign exchange risk Foreign exchange risk arises when foreign currency assets and liabilities recognized as at December 31, 2018, are presented in a currency, other than the functional currency. As at December 31, 2018 and 2017, the book amount of foreign currency assets and liabilities exposed to foreign exchange risk and the effects on profit before income tax expense and equity if the foreign exchange rate of the Korean won has increased/decreased by 10% with all other variables held constant, are as follows:


Book amount Impact on profit or loss before tax

and equity Assets Liabilities Increase(10%) Decrease(10%) USD W 648,445,967 555,533,270 9,291,270 (9,291,270) EUR 71,899,831 70,315,054 158,478 (158,478) LYD 36,947,198 152,689 3,679,451 (3,679,451) DZD 30,129,511 23,046,145 708,337 (708,337) MYR 28,405,295 12,854,470 1,555,082 (1,555,082) Others 82,531,519 125,612,944 (4,308,143) 4,308,143 W 898,359,321 787,514,572 11,084,475 (11,084,475)


Book amount Impact on profit or loss before tax

and equity Assets Liabilities Increase(10%) Decrease(10%) USD W 463,914,236 256,942,249 20,697,199 (20,697,199) EUR 38,149,469 48,740,431 (1,059,096) 1,059,096 LYD 36,275,582 152,091 3,612,349 (3,612,349) MYR 29,250,132 10,072,214 1,917,792 (1,917,792) VND 17,977,520 2,310,073 1,566,745 (1,566,745) Others 51,087,539 97,044,982 (4,595,744) 4,595,744 W 636,654,478 415,262,040 22,139,245 (22,139,245)


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29. Financial Risk Management, Continued

(2) Price risk Most of the investment classified as financial assets at FVPL in the statement of financial position are not exposed to price risk because the fair value of unlisted securities is not significantly changed.

(3) Credit risk Credit risk is managed at the Company level. Credit risk is from trade receivables that the Company holds from operating activities such as construction contracts and loans from related parties, but also from cash and cash equivalents, and deposits in banks and financial institutions. Deposits in banks and financial institutions are made to financial institutions such as Korea Exchange Bank and other major institutions with favorable reputation, so credit risk is limited. If a customers with operating activities such as construction contract are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. The maximum exposure to credit risk as of December 31, 2018 and 2017, is as follows:


Book amount Maximum exposure Book amount

Maximum exposure

Cash and cash equivalents W 390,072,209 390,072,209 621,736,763 621,736,763 Short-term and long-term financial instruments 1,731,823,575 1,731,823,575 1,785,611,618 1,785,611,618

Trade receivables 814,544,833 814,544,833 985,374,250 985,374,250 Other receivables 229,901,976 229,901,976 177,067,055 177,067,055 Long-term other receivables 538,089,774 538,089,774 455,353,092 455,353,092

Available-for-sale financial assets - - 45,225,856 45,225,856

Financial assets at FVPL 30,903,442 30,903,442 - - Financial assets at FVOCI 34,740,852 34,740,852 - - Financial guarantee liabilities 29,177,427 1,615,096,798 26,723,475 1,252,150,491

W 3,799,254,088 5,385,173,459 4,097,092,109 5,322,519,125


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(4) Liquidity risk The Company monitors rolling forecasts of the Company’s liquidity requirements to ensure it has sufficient cash to meet operational needs at all times so that the Company does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. The Company’s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans. Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the Company’s financial department. The financial department invests surplus cash in interest-bearing current accounts, time deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts. As at December 31, 2018, the Company has cash and cash equivalents and short-term financial instruments of W2,120,544 million (2017: W1,822,250 million) that are expected to readily generate cash inflows for managing liquidity risk. Details of the Company’s liquidity risk analysis as at December 31, 2018 and 2017, are as follows:


Less than 1 year Between

1 and 5 years Total

Trade payables W 837,181,259 - 837,181,259 Other payables 143,892,651 - 143,892,651 Debentures 106,844,750 207,399,000 314,243,750 Long-term other payables - 57,184,975 57,184,975 Financial guarantee liabilities 1,615,096,798 - 1,615,096,798 W 2,703,015,458 264,583,975 2,967,599,433 (In thousands of won) December 31, 2017

Less than 1 year Between

1 and 5 years Total

Trade payables W 843,338,452 - 843,338,452 Other payables 64,775,542 - 64,775,542 Debentures 7,575,000 314,243,750 321,818,750 Long-term other payables - 54,504,430 54,504,430 Financial guarantee liabilities 1,252,150,491 - 1,252,150,491 W 2,167,839,485 368,748,180 2,536,587,665

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


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(5) Capital management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern, so the Company can continue to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. Consistent with others in the industry, the Company monitors capital on the basis of the debt-to-equity ratio. This ratio is calculated as net debt divided by total capital. Debt-to-equity ratio as at December 31, 2018 and 2017, are as follows:

(In thousands of won) December 31, 2018 December 31, 2017 Total liability(A) W 2,625,288,044 2,782,427,932 Total equity(B) 3,321,317,176 3,279,560,156 Debt ratio(A/B) 79% 85%

30. United States Dollar Amounts

The Company operates primarily in Korean won and its accounting records are maintained in Korean won. The U.S. dollars amounts, provided herein, represent supplementary information, solely for the convenience of the reader. All won amounts are expressed in U.S. dollars at US $1: W1,118.1, the exchange rate in effect on December 31, 2018. Such presentation is not in accordance with accounting principles generally accepted in either the Republic of Korea or the United States, and should not be construed as a representation that the won amounts shown could be readily converted, realized or settled in U.S. Dollars at this or any other rate. The December 31, 2017 U.S. dollar amounts, which were previously expressed at US $1: W1,071.4, respectively, the rate in effect on December 31, 2017 have been restated to reflect the exchange rate in effect on December 31, 2018.

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Notice to Readers This report is annexed in relation to the audit of the separate financial statements as of December 31, 2018 and the review of internal accounting control system pursuant to Article 8-7 of the Act on External Audit of Stock Companies, Etc. of the Republic of Korea.

KPMG SAMJONG Accounting Corp. Tel +82 (2) 2112 0100

152, Teheran-ro, Gangnam-gu, Seoul 06236 Fax +82 (2) 2112 0101 Republic of Korea www.kr.kpmg.com

97

Independent Auditors’ Review Report on Internal Accounting Control System English translation of a Report Originally Issued in Korean

To the President of HYUNDAI ENGINEERING CO., LTD.

We have reviewed the accompanying Report on the Operational status of Internal Accounting Control System (“IACS”) of HYUNDAI ENGINEERING CO., LTD.(the “Company”) as of December 31, 2018. The Company's management is responsible for designing and maintaining effective IACS and for its assessment of the effectiveness of IACS. Our responsibility is to review management's assessment and issue a report based on our review. In the accompanying report of management’s assessment of IACS, the Company’s management stated: “Based on the assessment of the operational status of the IACS as of December 31, 2018, the Company’s IACS incorporates its internal accounting control policies and organizations, in accordance with the Act on External Audit of Stock Companies, Etc. (the “External Audit Law”) and is in compliance with all the control procedures contained in the Internal Accounting Control Policies as of December 31, 2018”.

We conducted our review in accordance with IACS Review Standards, issued by the Korean Institute of Certified Public Accountants. Those Standards require that we plan and perform the review to obtain assurance of a level less than that of an audit as to whether the Report on the Operational Status of Internal Accounting Control System is free of material misstatement. Our review consists principally of obtaining an understanding of the Company’s IACS, inquiries of company personnel about the details of the report, and tracing to related documents we considered necessary in the circumstances. We have not performed an audit and, accordingly, we do not express an audit opinion. However, as the Company is a privately-held small or medium sized enterprise, the design and operations and assessment of its IACS are limited compared with those of publicly-held small or medium-sized enterprises, under Chapter 6 “Addendum” of IACS Standards and Article 8 of the External Audit Law. As such, we performed our review in accordance with Chapter 14 “Review Standards for Small and Medium Sized Enterprises.”

A company's IACS is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Korean Accounting Standards for Non-public Entities. Because of its inherent limitations, however, IACS may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our review, nothing has come to our attention that the Report on the Operational Status of Internal Accounting Control System as of December 31, 2018 is not prepared, in all material respects, in accordance with Chapter 6, “Addendum” of the IACS Framework issued by the Internal Accounting Control System Operation Committee.

This report applies to the Company’s IACS in existence as of December 31, 2018. We did not review the Company’s IACS subsequent to December 31, 2018. This report has been prepared for Korean regulatory purposes, pursuant to the Act on External Audit of Stock Companies, Etc. and may not be appropriate for other purposes or for other users.

Seoul, Korea March 4, 2019

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Report on the Operational status of Internal Accounting Control System English Translation of a Report Originally Issued in Korean

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

We, as the Chief Executive officer(“CEO”) and the Internal Accounting Control Officer(“IACO”) of HYUNDAI ENGINEERING CO., LTD. (the “Company”), have assessed the status of the design and operations of the Company’s internal accounting control system (“IACS”) as of December 31, 2018.

The Company’s management, including CEO and IACO, is responsible for the design and operations of its IACS.

We, as the CEO and the IACO, have assessed whether the IACS has been effectively designed and is operating to prevent and detect any error or fraud which may cause any misstatement of the financial statements, for the purpose of establishing the reliability of financial statement preparation and presentation for external uses.

We, as the CEO and the IACO, applied the IACS Standards established by the IACS Operations Committee for the assessment of design and operations of the IACS.

Based on the assessment of the operations of the IACS, the Company’s IACS has been effectively designed and is operating as of December 31, 2018, in all material respects, in accordance with the IACS Framework issued by the IACS Operations Committee.

Sung, Sang Rok Chief Executive Officer

Lee, Sang Kook Internal Accounting Control Officer

February 13, 2019

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