SAMSUNG HEAVY INDUSTRIES CO., LTD.

(1)

SAMSUNG HEAVY INDUSTRIES CO., LTD.

Separate Financial Statements

December 31, 2020

(With Independent Auditors’ Report Thereon)

(2)

We have audited the separate financial statements of Samsung Heavy Industries Co., Ltd. (the “Company”), which comprise the separate statement of financial position as of December 31, 2020, the separate statement of loss and comprehensive loss, changes in equity and cash flows for the year then ended, and notes, including 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, 2020, 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”).

We also have audited, in accordance with Korean Standards on Auditing (“KSAs“), the Company’s Internal Control over Financial Reporting (“ICFR”) as of December 31, 2020 based on the criteria established in Conceptual Framework for Designing and Operating Internal Control over Financial Reporting issued by the Operating Committee of Internal Control over Financial Reporting in the Republic of Korea, and our report dated March 11, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

We conducted our audit 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 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

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the separate financial statements as of and for the year ended December 31, 2020. These matters were addressed in the context of our 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.

(1) Revenue recognition based on the input method

As described in the Note 3 to the separate financial statements, total contract revenue will be the amount agreed in the initial contract, however, it is affected by varieties of uncertainties that depend on the outcome of future event, and increased from variations in the original contract work, plus incentive payments and claims, and on the other hand, it is decreased by penalties attributable to the Company in the completion of the contract.

Also, the contract revenue is affected by the progress towards completion of contract that is measured by the proportion that costs incurred to date bear to the estimated total contract costs based on the future estimated material costs, labor costs, construction period and others.

As described in the Note 3 to the separate financial statements, the changes in estimated total contract revenue and costs may have significant impacts on the profit or loss for the current period (or for the future

(4)

２ cost ratio and contract assets

-

Testing the design and operating effectiveness of certain internal controls over the process related to changes in terms of contract

-

For selected samples, inspection of relevant documents to assess the appropriateness of changes in contract amount

-

Performing retrospective reviews on reasonableness of estimated liquidated damages

-

Assessing the appropriateness of estimated total contract costs (2) Uncertainty of estimated total contract costs

As described in the Note 3 to the separate financial statements, total contract costs are calculated based on estimated material costs, labor costs and construction period, and uncertainty risk related to exchange rate fluctuation, changes of steel prices and changes in production hours exists. Accordingly, considering the impacts on profit or loss for the year ended December 31, 2020 and future period, we identified a key audit matter associated with uncertainty of estimated total contract costs.

The primary procedures we performed to address this key audit matter included the following:

- Testing the design and operating effectiveness of certain internal controls over the process related to determination of total contract costs

- Making inquiries and analytical review on changes in major cost components of total contract costs - For the constructions of vessels completed, performing retrospective reviews on projects in which

significant changes occurred in total contract costs

- Assessing the cause of significant changes in total contract cost and if necessary, inspecting the related documents

- Performing analytical review on estimated total contract costs among similar vessels

- For selected major projects, inspection of documents for the underlying data of estimated total contract costs provided by operation divisions

- Comparing material costs order details provided by purchasing department by project with the total contract costs

- Comparing total contract costs in the Company’s annual business plan and those used in calculating the percentage-of-completion for projects under construction

- Inspection of documents to assess whether estimated total contract costs were approved by appropriate person

(3) Assessment of the percentage-of-completion

As described in the Note 2 to the separate financial statements, the Company should include only incurred contract cost for work performed to estimated total contract costs in case the percentage-of-completion is calculated based on estimated total contract costs. There is a risk in that changes in cumulative contract costs may include the costs incurred that are attributable to inefficiencies in the construction progress.

Therefore, considering the uncertainty of changes in revenue, we identified assessment of the percentage-of- completion as a key audit matter.

- Testing the design and operating effectiveness of certain internal controls over the process related to cost input and allocation by project

- Making inquiries and performing analytical review on changes in contract amount, estimated total contract costs, cost ratio and contract assets

- Making inquiries and performing analytical review on changes in the construction percentage-of- completion

- Making inquiries and performing analytical review on changes in components of the accumulated contract costs incurred

- For selected major projects, performing analytical review to assess if there was a significant difference between the actual progress of construction and the percentage-of-completion

(5)

(4) Collectability of contract assets

As described in the Note 3 to the separate financial statements, the Company assesses at the end of each reporting period whether there is an objective evidence that a contract asset is impaired. The Company considers that there is an objective evidence of impairment if indicators, including financial difficulties of a customer, an increase in possibility of contract cancellation due to delay in the construction or a decrease in ship price, or a delay in delivery or others, are identified. After the assessment of impairment indicators, the Company recognizes impairment losses in the case that there is an objective evidence of impairment and that the impairment event has an impact on the future cash flows from constructions which can be reliably estimated. Considering that uncertainties in collectability of contract assets has been increased due to termination of contract and delay in delivery mainly resulted from certain customers’ financial difficulties from the extended global oil price decline, we identified collectability of contract assets as a key audit matter.

- Testing the design and operating effectiveness of certain internal controls over the process related to review of an indication of impairment and collectability of contract asset

- Making inquiries and inspection of sampled documents over payment terms, penalties for delay, delivery time, and other obligations for the project in which significant increase in contract assets

- Assessing management’s basis on estimates for collectability of the contract assets that had indication of an impairment

- For selected major customers, sending confirmation to assess contract price, cumulative billing amount and cumulative collection receipt

(5) Impairment evaluation of cash-generating units

As described in the Note 2 to the separate financial statements, the Company assesses at the end of each reporting period whether there is an objective evidence that an asset is impaired. If there are indications of impairment to the cash-generating unit, the Company determines reflection of the impairment losses allocated to each individual assessment unit by comparing the recoverable amount and carrying amount. As of December 31, 2020, the Company determined that there are indications of impairment considering continuous operating losses and decrease in orders.

As of December 31, 2020, the Company performed the impairment assessment on the cash-generating unit where impairment indicators such as long-term stock price declines and poor performance were identified.

The recoverable amount of the cash-generating unit was estimated for the impairment assessment, and the recoverable amount is determined to be the larger of the value in use or the fair value less costs to sell.

Considering the significant management judgment, possibility of management bias, and potential impact of impairment in the separate financial statement, we identified impairment assessment of the cash-generating unit as a key audit matter.

- Testing the design and operating effectiveness of certain internal controls over the process related to the impairment

- Assessing the independence and qualification of external experts engaged by the Company

- Engaging our valuation specialists to assist us in evaluating evaluation methodology and major assumptions including discount rate

- Comparing financial data used for impairment assessment and long-term business plans approved by management

- Comparing the future cash flows forecasts prepared in prior year with the current year’s performance to assess the Company’s ability to accurately forecast

(6)

４

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.

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

- Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, then 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.

(7)

requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

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

The engagement partner on the audit resulting in this independent auditor’s report is Chul-Young Kim.

Seoul, Korea March 11, 2021

This report is effective as of March 11, 2021, 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

(8)

(In won) Note December 31, 2020 December 31, 2019

Assets

Cash and cash equivalents 4,8 W 943,166,362,823 319,472,205,767 Short-term financial instruments 5,8 492,662,340,293 446,348,342,616

Trade receivables 6,8,10 258,947,494,012 176,413,104,580

Contract assets 6,7,10 2,207,248,195,454 2,563,269,382,794

Other receivables 8,10 34,919,170,036 57,017,494,178

Advance payments 411,438,986,913 347,518,386,636

Prepaid expenses 43,975,947,781 70,087,097,000

Current derivative financial instruments 8,9,11,35 271,790,072,565 120,246,427,926 Current firm commitment assets 11 12,219,115,262 209,504,824,149

Inventories 12 1,815,561,342,308 2,333,927,002,319

Prepaid income tax 3,022,214,665 3,718,661,378

Other current financial assets 8,13,21 76,766,948,838 83,476,980,783

Other current assets 54,068,120,082 69,225,751,495

Total current assets 6,625,786,311,032 6,800,225,661,621

Financial assets measured at FVTPL 8,9,14 12,839,859,065 12,836,463,941 Financial assets measured at FVOCI 8,9,15 25,981,110,000 16,158,580,000 Investments in subsidiaries, associates and

joint ventures 16 451,672,320,994 453,995,250,113

Property, plant and equipment 17 4,925,704,433,758 5,112,580,259,051

Right-of-use assets 18 - 53,007,727,472

Investment properties 19 17,774,231,028 16,460,521,879

Intangible assets 20 26,060,176,572 44,449,736,524

Long-term prepaid expenses 24,639,215,084 23,958,412,989

Non-current derivative financial instruments 8,9,11,35 95,475,376,055 80,319,834,899 Non-current firm commitment assets 11 3,121,705,777 167,469,486,027 Non-current trade receivables 8,10 13,516,847,174 16,891,144,201

Deferred tax assets 32 452,947,998,399 455,060,653,878

Other non-current financial assets 5,8,13 4,839,098,538 6,055,560,937 Total non-current assets 6,054,572,372,444 6,459,243,631,911

Total assets W 12,680,358,683,476 13,259,469,293,532

See accompanying notes to the separate financial statements.

(9)

(In won) Note December 31, 2020 December 31, 2019

Liabilities

Trade payables 8,35 W 418,643,061,853 644,475,707,997

Short-term borrowings 8,21,35 1,811,810,231,543 1,634,926,162,646

Other payables 8,35 102,800,283,469 70,879,756,729

Contract liabilities 6,7 1,716,202,360,244 1,551,804,906,973

Accrued expenses 8,35 140,536,979,462 198,825,170,922

Current derivative financial instruments 8,9,11,35 221,998,852,568 414,832,926,016 Current firm commitment liabilities 11 275,560,263,880 237,458,028,206 Current portion of long-term debts 8,21,35 1,574,340,239,578 1,332,104,781,824 Current portion of lease liabilities 18,35 16,588,716,573 24,730,558,987 Provision for construction losses 6 119,049,616,343 115,599,428,130 Provision for construction warranty 6 233,150,722,208 242,741,130,647

Other current provisions 23 706,847,701,203 385,508,140,980

Other current liabilities 18,834,935,630 30,211,198,011

Total current liabilities 7,356,363,964,554 6,884,097,898,068

Debentures 8,21,35 208,668,832,032 269,736,576,155

Long-term borrowings 8,21,35 1,098,800,000,000 431,802,000,000

Lease liabilities 18,35 17,815,978,757 29,743,210,608

Net defined benefit liabilities 22 15,332,810,915 46,453,949,030 Provision for construction warranty 6 100,752,674,552 89,157,426,134

Other non-current provisions 23 15,634,000,000 15,634,000,000

Non-current derivative financial instruments 8,9,11,35 35,407,739,052 193,378,000,382 Non-current firm commitment liabilities 11 94,957,563,584 112,749,785,662 Other non-current financial liabilities 8,13,35 49,465,015,042 42,786,004,365 Total non-current liabilities 1,636,834,613,934 1,231,440,952,336

Total liabilities 8,993,198,578,488 8,115,538,850,404

Equity

Ordinary share 3,150,000,000,000 3,150,000,000,000

Preferred share 574,225,000 574,225,000

Share capital 24 3,150,574,225,000 3,150,574,225,000

Share premium 24 944,052,385,087 944,052,385,087

Accumulated other comprehensive income 25 701,697,525,842 740,749,839,832

Other components of equity 25 (963,896,146,243) (963,896,146,243)

Retained earnings (accumulated deficit) 26 (145,267,884,698) 1,272,450,139,452

Total equity 3,687,160,104,988 5,143,930,443,128

Total liabilities and equity W 12,680,358,683,476 13,259,469,293,532

(10)

(In won) Note 2020 2019

Revenue 6,27,36 W 6,825,532,312,130 7,098,805,561,786

Cost of sales 28 7,315,384,995,531 7,149,438,676,277

Gross loss (489,852,683,401) (50,633,114,491)

Selling, general and administrative expenses 28,29 522,182,861,840 599,450,834,214

Operating loss (1,012,035,545,241) (650,083,948,705)

Other non-operating income 30 1,173,826,121,064 1,593,599,069,109 Other non-operating expenses 30 1,350,102,934,096 1,983,680,516,439

Finance income 31 318,517,336,976 298,712,657,046

Finance costs 31 543,427,298,991 421,702,422,588

Loss before income tax (1,413,222,320,288) (1,163,155,161,577)

Income tax expense (benefit) 32 14,823,094,358 188,241,693,941

Loss for the year W (1,428,045,414,646) (1,351,396,855,518)

Loss per share

Basic loss per share

Ordinary shares 33 (2,364) (2,237)

Preferred shares 33 (2,364) (2,237)

(11)

(In won) Note 2020 2019

Loss for the year W (1,428,045,414,646) (1,351,396,855,518)

Other comprehensive income (loss) Items that

will not be reclassified to profit or loss

Gain (loss) on valuation of financial assets

measured at FVOCI 8 7,445,477,740 2,128,933,156

Remeasurements of net defined benefit liabilities 22 8,388,965,458 9,683,705,596 Revaluation of property, plant and equipment 17 (6,340,143,527) - Items that are or may be reclassified

subsequently to profit or loss

Gain (loss) on valuation on derivative instruments 11 (38,219,223,165) (81,537,182,799) (28,724,923,494) (69,724,544,047)

Total comprehensive loss for the year W (1,456,770,338,140) (1,421,121,399,565)

(12)

(In won) Share capital Share premium

Accumulated other comprehensive

income

Other components of equity

Retained earnings

(accumulated deficit) Total equity

Balance at January 1, 2019 W 3,150,574,225,000 944,052,385,087 823,439,285,766 (963,896,146,243) 2,610,882,093,083 6,565,051,842,693

Total comprehensive income (loss) for the period

Loss for the year - - - - (1,351,396,855,518) (1,351,396,855,518)

Gain (loss) on valuation of financial assets measured at FVOCI - - (955,525,680) - 3,084,458,836 2,128,933,156

Remeasurements of net defined benefit liabilities - - - - 9,683,705,596 9,683,705,596

Gain (loss) on valuation on derivative instruments - - (81,537,182,799) - - (81,537,182,799)

Transactions with owners of the Company, recognized

directly in equity

Reclassification of revaluation surplus - - (196,737,455) - 196,737,455 -

Balance at December 31, 2019 W 3,150,574,225,000 944,052,385,087 740,749,839,832 (963,896,146,243) 1,272,450,139,452 5,143,930,443,128

Balance at January 1, 2020 W 3,150,574,225,000 944,052,385,087 740,749,839,832 (963,896,146,243) 1,272,450,139,452 5,143,930,443,128

Total comprehensive income (loss) for the period

Loss for the year - - - - (1,428,045,414,646) (1,428,045,414,646)

Gain (loss) on valuation of financial assets measured at FVOCI - - 7,445,477,740 - - 7,445,477,740

Remeasurements of net defined benefit liabilities - - - - 8,388,965,458 8,388,965,458

Decrease in revaluation surplus - - (6,340,143,527) - - (6,340,143,527)

Gain (loss) on valuation on derivative instruments - - (38,219,223,165) - - (38,219,223,165)

Transactions with owners of the Company, recognized

directly in equity

Reclassification of revaluation surplus - - (1,938,425,038) - 1,938,425,038 -

Balance at December 31, 2020 W 3,150,574,225,000 944,052,385,087 701,697,525,842 (963,896,146,243) (145,267,884,698) 3,687,160,104,988

(13)

(In won) Note 2020 2019

Cash flows from operating activities

Cash generated from operations 34 W (126,550,165,715) (857,932,434,601)

Interest received 22,548,741,329 39,559,470,325

Interest paid (150,424,091,594) (117,221,000,229)

Dividends received 8 160,020,000 367,327,350

Income taxes paid (2,843,238,227) (4,764,951,675)

Net cash used in operating activities (257,108,734,207) (939,991,588,830)

Cash flows from investing activities

Acquisition of short-term financial instruments (1,832,983,340,458) (814,880,544,412) Proceeds from disposal of short-term financial

instruments 1,761,266,231,312 724,789,493,094

Proceeds from disposal of financial assets

measured at FVTPL 14 198,473,945 70,883,552

Proceeds from disposal of financial assets

measured at FVOCI 15 - 4,509,087,698

Acquisition of investments in subsidiaries,

associates and joint ventures 16 (230,150,881) (71,952,000)

Proceeds from disposal of investments in

subsidiaries, associates and joint ventures 16 - 40,839,988

Acquisition of property, plant and equipment 17 (89,144,187,240) (68,875,566,608) Proceeds from disposal of property, plant and

equipment 17 10,975,072,340 1,298,528,661

Proceeds from disposal of intangible assets 20 5,324,000 234,000,000

Acquisition of other current financial assets (76,488,160,000) -

Proceeds from disposal of other current financial

assets 78,262,508,300 -

Acquisition of other non-current financial assets (1,295,213,341) (1,116,398,996) Proceeds from disposal of other non-current

financial assets 933,074,540 2,487,400,187

Net cash used in investing activities (148,500,367,483) (151,514,228,836)

Cash flows from financing activities

Proceeds from short-term borrowings 21,34 2,562,564,704,612 1,598,561,321,940 Repayment of short-term borrowings 21,34 (2,349,925,412,971) (1,719,320,506,976) Repayment of current portion of long-term debts 21,34 (1,310,099,000,000) (708,232,000,000) Issuance of debentures 21,34 248,489,570,000 484,247,510,000

Repayment of debentures 21,34 (19,961,579,800) -

Proceeds from long-term borrowings 21,34 1,938,954,000,000 935,567,000,000

Repayment of long-term borrowings 21,34 - (6,090,000,000)

Payment of lease liabilities 18,34 (40,333,754,385) (56,905,068,349) Net cash provided by financing activities 1,029,688,527,456 527,828,256,615

Net increase (decrease) in cash and cash equivalents 624,079,425,766 (563,677,561,051) Cash and cash equivalents at January 1 319,472,205,767 882,415,990,716 Effects of exchange rate changes on cash and cash

equivalents (385,268,710) 733,776,102

Cash and cash equivalents at December 31 W 943,166,362,823 319,472,205,767

(14)

1. Description of the Company

Samsung Heavy Industries Co., Ltd. (referred to as the “Company”) was incorporated on August 5, 1974 under the Commercial Code of the Republic of Korea to shipbuilding contracts and offshore plants. The Company listed its shares on the Korea Exchange on January 28, 1994.

2. Significant Accounting Policies 2.1 Basis of Preparation

The separate financial statements of the Company have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audits of Corporations in the Republic of Korea. 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 separate financial statements have been prepared on a historical cost basis, except for the following material items in the statement of financial position:

- specific financial assets and financial liabilities (including derivatives), specific property, plant and equipment measured at fair value; and

- liabilities for defined benefit plans and plan assets measured at fair value.

The preparation of the separate 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

2.2.1 New and amended standards and interpretations adopted by the Company

The Company has applied the following standards and interpretations for the first time for their annual reporting period commencing January 1, 2020.

(1) Amendments to K-IFRS No.1001 ‘Presentation of Financial Statements’ and K-IFRS No.1008 ‘Accounting policies, changes in accounting estimates and error’ – Definition of Materiality

The amendments clarify the explanation of the definition of materiality and amended K-IFRS No.1001 and K- IFRS No.1008 in accordance with the clarified definitions. Materiality is assessed by reference to omission or misstatement of material information as well as effects of immaterial information, and to the nature of the users when determining the information to be disclosed by the Company. The Company does not expect that these amendments have a significant impact on the separate financial statements.

(15)

2. Significant Accounting Policies, Continued

2.2 Changes in Accounting Policies and Disclosures, Continued

2.2.1 New and amended standards and interpretations adopted by the Company, Continued

(2) Amendments to K-IFRS No.1103 ‘Business Combination’ – Definition of a Business

The amended definition of a business requires an acquisition to include an input and a substantive process that together significantly contribute to the ability to create outputs and the definition of output excludes the returns in the form of lower costs and other economic benefits. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, an entity may elect to apply an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The Company does not expect that these amendments have a significant impact on the separate financial statements.

(3) Amendments to K-IFRS No.1109 'Financial Instruments’, K-IFRS No.1039 ‘Financial Instruments:

Recognition and Measurement’ and K-IFRS No.1107 'Financial Instruments: Disclosures’ (Interest rate benchmark reform)

The amendments allow to apply the exceptions when forward-looking analysis is performed in relation the application of hedge accounting while uncertainties arising from interest rate benchmark reform exist. The exceptions require the Company assumes that the interest rate benchmark on which the hedged items and the hedging instruments are based on is not altered as a result of interest rate benchmark reform, when determining whether the expected cash flows are highly probable, whether an economic relationship between the hedged item and the hedging instrument exists, and when assessing the hedging relationship is highly effective. The Company does not expect that these amendments have a significant impact on the separate financial statements.

(4) Conceptual Framework for Financial Reporting (2018)

The conceptual framework is not a standard. Nothing in the conceptual framework overrides any standard or any requirement in a standard. The purpose of the conceptual framework is to assist the Korea Accounting Standards Board to develop K-IFRS that are based on consistent concepts, assist preparers to develop consistent accounting policies when no standards applies to a particular transaction or other event, or when a standard allows a choice of accounting policy. And it assists all parties to understand and interpret the standards.

The revised conceptual framework includes some new concepts, presents changes in the definitions and recognition criteria of assets and liabilities, and clarifies some important concepts. The Company does not expect that these amendments have a significant impact on the separate financial statements.

(16)

2.2.2 New standards and interpretations not yet adopted by the Company

The new standards and interpretations that have been published but have not been mandatory for annual periods beginning after January 1, 2020 are as follows:

(1) Amendments to K-IFRS No.1116 ‘Leases’ – Practical expedient for COVID-19 Related Rent Exemption, Concessions, Suspension

As a practical expedient, a lessee may elect not to assess whether a rent concessions occurring as a direct consequent of the COVID-19 pandemic is a lease modification, and the amount recognized in profit or loss as a result of applying this exemption should be disclosed. The amendments are effective for periods beginning on or after June 1, 2020, with earlier application permitted. The Company does not expect that these amendments have a significant impact on the separate financial statements.

(2) Amendments to K-IFRS No.1109 ‘Financial Instruments’, K-IFRS No.1039 ‘Financial Instruments:

Recognition and Measurement’, K-IFRS No.1107 ‘Financial Instruments: Disclosures’, K-IFRS No.1104

‘Insurance contracts’ and K-IFRS No.1116 ‘Leases’ – Interest Rate Benchmark Reform-Phase 2

The amendments include exemptions that changes of interest rate indicators for financial instruments measured at amortised cost are accounted for by updating the effective interest rate, and that the hedge may be able to continue without interruption despite changes of interest rate indicators. The amendments are effective for periods beginning on or after January 1, 2021, with earlier application permitted. The Company does not expect that these amendments have a significant impact on the separate financial statements.

(3) Amendments to K-IFRS No.1103 'Business Combinations’ – References to Conceptual Framework

The amendments update a reference of definition of assets and liabilities qualify for recognition in revised Conceptual Framework for Financial Reporting. However, the amendments add an exception for the recognition of liabilities and contingent liabilities within the scope of K-IFRS No.1037 ‘Provisions, Contingent Liabilities and Contingent Assets’, and K-IFRS No.2121 ‘Levies’. The amendments also confirm that contingent assets should not be recognized at the acquisition date. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Company does not expect that these amendments have a significant impact on the separate financial statements.

(4) Amendments to K-IFRS No.1016 ‘Property, Plant and Equipment’ – Proceeds before Intended Use

The amendments prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while the entity is preparing the asset for its intended use.

Instead, the entity will recognize the proceeds from selling such items, and the costs of producing those items, in profit or loss. The amendments are effective for periods beginning on or after 1 January 2022, with earlier application permitted. The Company does not expect that these amendments have a significant impact on the separate financial statements.

(17)

2.2.2 New standards and interpretations not yet adopted by the Company, Continued

(5) Amendments to K-IFRS No.1037 ‘Provisions, Contingent Liabilities and Contingent Assets’ – Onerous Contracts: Cost of Fulfilling a Contract

The amendments clarify that the ‘costs of fulfilling a contract’ comprise both the incremental costs and an allocation of other direct costs when assessing whether a contract is onerous. The amendments are effective for periods beginning on or after January 1, 2022, with earlier application permitted. The Company does not expect that these amendments have a significant impact on the separate financial statements.

(6) Annual Improvements to K-IFRS Standards 2018–2020

Annual Improvements to K-IFRS Standards 2018–2020 are effective for periods beginning on or after January 1, 2022, with earlier application permitted. The Company does not expect that these amendments have a significant impact on the separate financial statements.

- K-IFRS No.1101 ‘First time Adoption of Korean International Financial Reporting Standards’ – Subsidiaries that are first-time adopters

- K-IFRS No.1109 ‘Financial Instruments’ – Fees related to the 10% test for derecognition of financial liabilities

- K-IFRS No.1116 ‘Leases’ – Lease incentives - K-IFRS No.1041 ‘Agriculture’ – Measuring fair value

(7) Amendments to K-IFRS No.1001 ‘Presentation of Financial Statements’ – Classification of Liabilities as Current or Non-current

The amendments clarify that liabilities are classified as either current or non-current, depending on the substantive rights that exist at the end of the reporting period. Classification is unaffected by the likelihood that an entity will exercise right to defer settlement of the liability or the expectations of management.

Also, the settlement of liability includes the transfer of the entity’s own equity instruments, however, it would be excluded if an option to settle them by the entity’s own equity instruments if compound financial instruments is met the definition of equity instruments and recognized separately from the liability. The amendments should be applied for annual periods beginning on or after January 1, 2023, and earlier application is permitted. The Company is considering the impact of these amendments on the separate financial statements.

(18)

2. Significant Accounting Policies, Continued 2.3 Subsidiaries, Joint Ventures, and Associates

The financial statements of the Company are the separate financial statements prepared in accordance with K-IFRS No.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 K-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 Operating Segment

Information of each operating segment is reported in a manner consistent with the internal business segment reporting provided to the chief operating decision-maker (Note 36). The chief operating decision- maker is responsible for allocating resources and assessing performance of the operating segments.

2.5 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 each entity operates (the “functional currency").

The separate financial statements are presented in Korean won, which is the Company’s functional and presentation currency

(2) Transaction and balances

Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in profit or loss. They are recognized in other comprehensive income if they relate to qualifying cash flow hedges and qualifying effective portion of net investment hedges, or are attributable to monetary part of the net investment in a foreign operation.

Foreign exchange gains and losses that relate to borrowings are presented in the statement of profit or loss, within ‘finance costs’. All other foreign exchange gains and losses are presented in the statement of profit or loss within ‘other income (expenses)’.

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 equity instruments 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 equity instruments at fair value through other comprehensive income are recognized in other comprehensive income.

(19)

2. Significant Accounting Policies, Continued 2.6 Financial Assets

(1) Classification

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

- financial assets measured at fair value through profit or loss (“FVTPL”);

- financial assets measured at fair value through other comprehensive income (“FVOCI”); and - financial assets measured at amortized cost.

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

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

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

(2) Measurement

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

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

(i) Debt instruments

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

(a) Amortized cost

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

(20)

2. Significant Accounting Policies, Continued 2.6 Financial Assets, Continued

(b) Fair value through other comprehensive income

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

‘other income (expenses)’ and impairment losses (reversal of impairment losses) are presented in ‘other expenses (income)’.

(c) Fair value through profit or loss

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

(ii) Equity instruments

The Company subsequently measures all equity investments at fair value. Where the Company’s management has elected to present fair value gains and losses on equity investments, which held for long- term investment or strategic purpose, in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment.

Dividend income from such investments continue to be recognized in profit or loss as ‘other income’ when the right to receive payments is established.

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

(21)

(3) Impairment

(i) Financial instruments and Contract assets

The Company recognizes loss allowances for expected credit losses (“ECL”) on:

- financial assets measured at amortized cost;

- debt investments measured at FVOCI; and - contract assets defined in K-IFRS No.1115.

The Company measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs:

- debt securities that are determined to have low credit risk at the reporting date; and

- other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECLs.

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

The Company considers a financial asset to be in default when:

- the borrower is unlikely to pay its credit obligations to the Company in full, without recourse by the Company to actions such as realizing security (if any is held); or

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).

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

(ii) Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive). ECLs are discounted at the effective interest rate of the financial asset.

(22)

(iii) Credit-impaired financial assets

At each reporting date, the Company assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired.

A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

- significant financial difficulty of the borrower or issuer;

- a breach of contract such as a default or being past due;

- the restructuring of a loan or advance by the Company on terms that the Company would not consider otherwise;

- it is probable that the borrower will enter bankruptcy or other financial reorganization; or - the disappearance of an active market for a security because of financial difficulties.

(iv) Presentation of allowance for ECL in the statement of financial position

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets.

(v) Write-off

The gross carrying amount of a financial asset is written off when the Company has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. The Company expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Company’s procedures for recovery of amounts due.

(4) Recognition and Derecognition

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

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

(5) Offsetting of financial instruments

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

(23)

2. Significant Accounting Policies, Continued 2.7 Derivative Instruments

Derivatives are initially recognized at fair value on the date when a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of the derivatives that are not qualified for hedge accounting are recognized in the statement of income within 'finance income (costs)' according to the nature of transactions.

The Company applies hedge accounting for firm commitments and highly probable forecasted transactions.

The Company documents the economic relationship between hedging instruments and hedged items, as well as its expectation of whether hedging instruments offset changes in fair values or cash flows of hedged items.

Hedges directly affected by interest rate benchmark reform.

For the purpose of evaluating whether there is an economic relationship between the hedged item(s) and the hedging instrument(s), the Company assumes that the benchmark interest rate is not altered as a result of interest rate benchmark reform.

For a cash flow hedge of a forecast transaction, the Company assumes that the benchmark interest rate will not be altered as a result of interest rate benchmark reform for the purpose of assessing whether the forecast transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect profit or loss. In determining whether a previously designated forecast transaction in a discontinued cash flow hedge is still expected to occur, the Company assumes that the interest rate benchmark cash flows designated as a hedge will not be altered as a result of interest rate benchmark reform.

The Company will cease to apply the specific policy for assessing the economic relationship between the hedged item and the hedging instrument

- to a hedged item or hedging instrument when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the interest rate benchmark-based cash flows of the respective item or instrument or

- when the hedging relationship is discontinued.

For its highly probable assessment of the hedged item, the Company will no longer apply the specific policy when the uncertainty arising from interest rate benchmark reform about the timing and the amount of the interest rate benchmark-based future cash flows of the hedged item is no longer present, or when the hedging relationship is discontinued.

The fair values of various derivative instruments used for hedging purposes are disclosed in Note 9. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. The fair value of trading derivatives is classified as a non-current asset or liability when the remaining maturity is more than 12 months and as a current asset or liability when the remaining maturity is less than 12 months.

(24)

2. Significant Accounting Policies, Continued 2.7 Derivative Instruments, Continued

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the statement of income, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The Company applies fair value hedge accounting for hedging exchange risk of firm commitments. The gain or loss relating to the effective portion of derivative instruments hedging exchange risk of a firm commitment is recognized in the statement of income within ‘other income (expenses)’. The gain or loss relating to the ineffective portion is recognized in the statement of income within ‘finance income (costs)’. Changes in the fair value of the firm commitments attributable to exchange risk are recognized in the statement of income within ‘other income (expenses)’.

When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the years during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss. Also, if the risk management objectives which continue the hedge relationships designated before change although the Company’s risk management strategy is the same, the Company discontinues previous hedge accounting and applies hedge accounting according to the new risk management objectives prospectively.

(25)

2. Significant Accounting Policies, Continued 2.8 Inventories

Inventories are stated at the lower of cost and net realizable value. Raw materials for shipbuilding &

offshore plants business are determined using individual method and moving weighted average method and individual method is applied for evaluating inventory of construction completed and materials in transit.

2.9 Property, Plant and Equipment

Land is shown at fair value based on valuations by external independent valuers. Valuations are performed with sufficient regularity to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.

All other property, plant and equipment except land are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditures that is directly attributable to the acquisition of the items.

Increases in the carrying amount arising on revaluation of land and buildings are credited to other comprehensive income and shown as other reserves in equity. Decreases that offset previous increases of the same asset are charged to other comprehensive income and debited against other reserves directly in equity; all other decreases are charged to the statement of profit or loss.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate the difference between their cost and their residual values over their estimated useful lives, as follows:

Estimated useful lives

Buildings 25 - 50 years

Structures 25 - 50 years

Machinery 10 - 30 years

Vehicles 5 - 30 years

Tools, furniture and fixtures 5 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is adjusted to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

When revalued assets are sold, the amounts included in revaluation reserves are transferred to retained earnings.

2.10 Borrowing Costs

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

(26)

2. Significant Accounting Policies, Continued 2.11 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.

2.12 Intangible Assets

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

Other intangible assets such as software which meet the definition of an intangible asset are amortized using the straight-line method over their estimated useful lives when the asset is available for use.

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:

Estimated useful lives

Other intangible assets 5 years

Useful lives and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.

(1) Research and development

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

(2) Subsequent expenditures

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

(27)

2. Significant Accounting Policies, Continued 2.13 Investment Property

Investment properties are property held to earn rentals or for capital appreciation or both. Investment properties are measured initially at its cost and transaction costs are included in the initial measurement.

After initial recognition, the book value of investment properties is presented at the cost less accumulated depreciation and accumulated impairment losses.

Subsequent costs are recognized as the carrying amount of the asset when, and only when it is probable that future economic benefits associated with the asset will flow to the Company, and the cost of the asset can be measured reliably, or recognized as a separate asset if appropriate. The carrying amount of what was replaced is derecognized.

Land is not depreciated, and other investment properties are depreciated using the straight-line method over the period from 50 years. The Company reviews the depreciation method, the estimated useful lives and residual values at the end of each annual reporting period. If expectations differ from previous estimates, the changes are accounted for as a change in accounting estimate.

2.14 Impairment of Non-financial assets

The carrying amounts of the Company’s non-financial assets, other than assets arising from contract assets recognized from revenue from customers, employee benefits, inventories, deferred tax assets and non- current assets held for sale, are reviewed at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets ("CGUs").

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflect current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

An impairment loss is recognized in profit or loss if the carrying amount of an asset or a CGU exceeds its recoverable amount.

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill acquired. Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

SAMSUNG HEAVY INDUSTRIES CO., LTD.