innocean worldwide inc. and its subsidiaries · 2017. 4. 27. · advertising agency, and are...

Innocean Worldwide Inc. and its subsidiaries

Consolidated financial statements for the years ended December 31, 2016 and 2015

with the independent auditors’ report

Table of contents

Independent auditors’ report PageConsolidated financial statements

Consolidated statements of financial position 1 Consolidated statements of comprehensive income 3

Consolidated statements of changes in equity 4

Consolidated statements of cash flows 5

Notes to the consolidated financial statements 6

Independent auditors’ report The Shareholders and Board of Directors Innocean Worldwide Inc. We have audited the accompanying consolidated financial statements of Innocean Worldwide Inc. (the “Company”) and its subsidiaries, which comprise the consolidated statement of financial position as at December 31, 2016 and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows, for the year then ended, all expressed in Korean won, and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility Our responsibility is to express an audit opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries as at December 31, 2016, and its financial performance and cash flows for the year then ended in accordance with Korean International Financial Reporting Standards. Other matter The consolidated financial statements of the Company for the year ended December 31, 2015 were audited by other auditors who expressed an unqualified opinion on those statements on March 16, 2016. March 15, 2017 This report is effective as of March 15, 2017, the auditors’ report date. Certain subsequent events or circumstances may have occurred between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the financial statements and may result in modifications to the auditors’ report.

한영회계법인

서울특별시 영등포구 여의공원로 111, 태영빌딩 3-8F07241

Tel: 02 3787 6600 Fax: 02 783 5890 ey.com/kr

Ernst & Young Han YoungTaeyoung Building, 111, Yeouigongwon-ro, Yeongdeungpo-gu, Seoul 07241 Korea

Tel: +82 2 3787 6600 Fax: +82 2 783 5890 ey.com/kr

Innocean Worldwide Inc. and its subsidiaries

Consolidated financial statements for the years ended December 31, 2016 and 2015

“The accompanying consolidated financial statements, including all footnotes and disclosures, have been prepared by, and are the responsibility of, the Company.”

Ahn, Kun Hee Chief Executive Officer Innocean Worldwide Inc.

(Korean won)

NotesAssetsCurrent assets

Cash and cash equivalents 28 \ 231,155,874,852 \ 241,689,362,048 Short-term financial instruments 4,28 437,454,119,785 344,925,909,115 Trade receivables and other receivables 5,28,30,31 847,009,342,569 700,760,360,225 Other financial assets 6,28 3,425,525,283 3,126,076,232 Current tax assets 2,068,078,241 2,241,454,103 Other current assets 7 28,810,936,778 26,919,959,040

Total current assets 1,549,923,877,508 1,319,663,120,763

Non-current assets:Long-term financial instruments 3,4,28 344,510,058 337,154,097 Available-for-sale (AFS) financial assets 8,28 2,144,532,612 2,133,217,686 Other financial assets 6,28 6,983,035,181 5,095,557,945 Investments in joint venture and associates 9 19,171,604,345 14,915,938,980 Property, plant and equipment 10 31,154,464,590 20,562,130,054 Intangible assets 11 60,205,994,400 63,564,635,537 Retirement benefit assets 15 1,157,414,569 935,985,126 Deferred tax assets 26 3,893,437,945 3,216,259,872 Other non-current assets 7 91,610,713 50,982,471

Total non-current assets 125,146,604,413 110,811,861,768 Total assets \ 1,675,070,481,921 \ 1,430,474,982,531

(Continued)

Innocean Worldwide Inc. and its subsidiariesConsolidated statements of financial positionas at December 31, 2016 and 2015

2016 2015

1

(Korean won)

NotesLiabilitiesCurrent liabilities:

Trade payables and other payables 12,28,31 \ 931,199,308,613 \ 739,378,028,575 Other financial liabilities 13,28 1,079,019,029 26,503,050 Current provisions 16 240,069,168 1,549,069,880 Income tax payable 9,591,069,311 8,609,132,558 Other current liabilities 14 33,202,756,437 39,585,602,289

Total current liabilities 975,312,222,558 789,148,336,352

Non-current liabilities:Other payables 12,28 887,396,391 1,159,609,371 Deferred tax liabilities 26 16,787,997,705 13,588,212,773 Non-current provisions 16 3,158,529,007 2,897,082,323 Other non-current liabilities 14 671,454,691 104,954,679

Total non-current liabilities 21,505,377,794 17,749,859,146 Total liabilities \ 996,817,600,352 \ 806,898,195,498

EquityCapital stock 17 10,000,000,000 10,000,000,000 Other contributed capital 18 132,848,563,863 132,848,563,863 Components of other capital 19 (7,092,615,880) (10,869,805,177)Retained earnings 20 518,806,961,528 472,937,334,756 Equity attributable to the owners of 654,562,909,511 604,916,093,442

the CompanyNon-controlling interests 23,689,972,058 18,660,693,591

Total equity \ 678,252,881,569 \ 623,576,787,033 Total liabilities and equity \ 1,675,070,481,921 \ 1,430,474,982,531

The accompanying notes are an integral part of the financial statements.

Innocean Worldwide Inc. and its subsidiariesConsolidated statements of financial positionas at December 31, 2016 and 2015 (cont'd)

2016 2015

2

(Korean won)

NotesSales 21,31,33 \ 1,051,560,761,873 \ 987,924,245,764 Cost of sales 25,31 (670,259,188,071) (670,260,035,126)Gross profit 381,301,573,802 317,664,210,638 Selling and administrative expenses 22,25 (281,861,616,220) (224,736,458,217)Operating income: 33 99,439,957,582 92,927,752,421

Gain on investments in joint venture andassociates, net 9 4,738,972,862 4,808,310,961

Finance income 23,29 15,714,876,921 14,900,231,577 Finance expenses 23,29 (6,974,693,228) (6,963,799,421)Other income 24 1,262,542,117 2,394,865,103 Other expenses 24 (4,706,345,852) (613,150,650)

Income before income tax: 109,475,310,402 107,454,209,991 Income tax expense 26 (31,502,227,783) (29,417,429,034)

Profit for the year 77,973,082,619 78,036,780,957

Other comprehensive income (expenses):Items that will not be reclassified

subsequently to profit or loss:Remeasurements of defined benefit plans 20 (1,478,851,818) (761,898,407)

(1,478,851,818) (761,898,407)

to profit or loss:Loss on foreign operations translation, net 5,073,785,497 (125,302,831)Changes in share of earnings of

equity-accounted investees, net 9 (193,307,502) 33,641,940 Gain on AFS financial assets, net 19 (50,777,079) (4,164,230)

4,829,700,916 (95,825,121)Total other comprehensive expenses 3,350,849,098 (857,723,528)

Total comprehensive income 81,323,931,717 77,179,057,429

Profit attributable to:Owners of the Company 65,348,478,590 70,019,163,183 Non-controlling interests 12,624,604,029 8,017,617,774

77,973,082,619 78,036,780,957 Comprehensive income attributable to:

Owners of the Company 67,646,816,069 68,372,256,792 Non-controlling interests 13,677,115,648 8,806,800,637

81,323,931,717 77,179,057,429

of the Company:Basic and diluted earnings per common share 27 ￦ 3,267 ￦ 3,697


Items that may be reclassified subsequently

Innocean Worldwide Inc. and its subsidiariesConsolidated statements of comprehensive incomefor the years ended December 31, 2016 and 2015

20152016

Earnings per share attributable to the owners

3

(Korean won)

Balances at January 1, 2015 \ 9,000,000,000 \ - \ (9,984,797,193) \ 416,280,069,980 \ 415,295,272,787 \ 12,044,062,734 \ 427,339,335,521 - - - (12,600,000,000) (12,600,000,000) (7,500,515,380) (20,100,515,380)

Profit for the year - - - 70,019,163,183 70,019,163,183 8,017,617,774 78,036,780,957 Loss on AFS financial assets, net - - (4,164,230) - (4,164,230) - (4,164,230)Remeasurements of defined benefit plans - - - (761,898,407) (761,898,407) - (761,898,407)

- - (914,485,694) - (914,485,694) 789,182,863 (125,302,831)

investees, net - - 33,641,940 - 33,641,940 - 33,641,940 - - - - - 5,310,345,600 5,310,345,600

1,000,000,000 132,848,563,863 - - 133,848,563,863 - 133,848,563,863 Balances at December 31, 2015 \ 10,000,000,000 \ 132,848,563,863 \ (10,869,805,177) \ 472,937,334,756 \ 604,916,093,442 \ 18,660,693,591 \ 623,576,787,033

Balances at January 1, 2016 \ 10,000,000,000 \ 132,848,563,863 \ (10,869,805,177) \ 472,937,334,756 \ 604,916,093,442 \ 18,660,693,591 \ 623,576,787,033- - - (18,000,000,000) (18,000,000,000) (8,647,837,181) (26,647,837,181)

Profit for the year - - - 65,348,478,590 65,348,478,590 12,624,604,029 77,973,082,619Loss on AFS financial assets, net - - (50,777,079) - (50,777,079) - (50,777,079)Remeasurements of defined benefit plans - - - (1,478,851,818) (1,478,851,818) - (1,478,851,818)

- - 4,021,273,878 - 4,021,273,878 1,052,511,619 5,073,785,497

investees, net - - (193,307,502) - (193,307,502) - (193,307,502)Balances at December 31, 2016 \ 10,000,000,000 \ 132,848,563,863 \ (7,092,615,880) \ 518,806,961,528 \ 654,562,909,511 \ 23,689,972,058 \ 678,252,881,569

The accompanying notes are integral part of the consolidated financial statements.

Total equity

Innocean Worldwide Inc. and its subsidiariesConsolidated statements of changes in equityfor the years ended December 31, 2016 and 2015

Total equity attributable to the owners of

Capital stockNon-controlling

interestsOther contributed capital of other capital Components

Changes in valuation of equity-accounted

Purchases of subsidiaries’ stock

Payment of cash dividends

Retained earnings the Company

Payment of cash dividends

Loss on foreign operations translation, netChanges in valuation of equity-accounted

Paid-in capital increase

Gain on foreign operations translation, net

4

(Korean won)

NotesCash flows from operating activities:

Cash generated from operations: 32 Profit for the year \ 77,973,082,619 \ 78,036,780,957 Adjustments 33,214,508,562 22,910,144,162 Changes in operating assets and liabilities 17,014,132,504 (10,560,370,775)

128,201,723,685 90,386,554,344 Interest received 8,587,578,482 8,159,937,451 Interest paid (13,136,461) (4,216,242)Dividend received 4,427,534,392 135,003,075 Income tax paid (26,901,278,193) (30,388,292,913)

Net cash provided by operating activities 114,302,421,905 68,288,985,715

Cash flows from investing activities:Proceeds from disposals (purchases) of

short-term financial instruments, net (92,689,763,931) (145,639,021,695)Proceeds from disposals of other financial assets 30,797,500 106,560,002 Disposal (acquisitions) of AFS financial securities (5,146,146) 350,000,000 Proceeds from disposals of property, plant

20,145,735 69,397,466 Proceeds from disposals of intangible assets 930,000,000 550,000,000 Acquisitions of other financial assets (415,524,000) (78,077,000)Acquisitions of property, plant and equipment (11,922,265,163) (14,264,103,817)Acquisitions of intangible assets (1,686,682,646) (1,577,474,473)Acquisition of a subsidiary - (5,310,345,600)

Net cash flows from business combinations - (937,016,666)Net cash provided by investing activities (105,738,438,651) (166,730,081,783)

Cash flows from financing activities:Paid-in capital increase - 133,848,563,863 Dividends paid (25,193,377,885) (12,600,000,000)

Net cash used in financing activities (25,193,377,885) 121,248,563,863

Net increase in cash and cash equivalents (16,629,394,631) 22,807,467,795 Cash and cash equivalents, beginning of the year 241,689,362,048 216,912,848,618 Effect of exchange rate changes on cash

and cash equivalents 6,095,907,435 1,969,045,635 Cash and cash equivalents, end of the year \ 231,155,874,852 \ 241,689,362,048


and equipment

2016 2015

Innocean Worldwide Inc. and its subsidiariesConsolidated statements of cash flowsfor the years ended December 31, 2016 and 2015

5

Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2016 and 2015

1. General 1.1. The Company Innocean Worldwide Inc. (the “Company” or “Parent Company”) was incorporated on May 17, 2005 under the laws of the Republic of Korea. The Company and its subsidiaries (the “Group”) conduct their business as an advertising agency, and are engaged in the production of commercial advertising and promotional materials, and other related business activities. The Company listed its common shares on the Korea Stock Exchange on July 17, 2015. The Company’s head office is located at 308, Gangnam-daero, Gangnam-gu, Seoul, Korea. As at December 31, 2016, the Company’s capital stock amounts to \10,000,000 thousand and the stockholders of the Company are as follows:

Name Number of shares Equity interest (%)Sung-Yi Chung 5,599,000 27.99 NHPEA IV Highlight Holdings AB 3,600,000 18.00 Hyundai Motor Chung Mong-Koo Foundation 1,800,000 9.00 Eui-Sun Chung 400,000 2.00 Others 8,601,000 43.01

20,000,000 100.00 1.2. Subsidiaries The Company’s consolidated subsidiaries as at December 31, 2016 and 2015 are as follows:

Subsidiaries Nature of

the business Location Closing date Ownership percentage

2016 2015 Innocean Worldwide

Communication Private Ltd. (IWI)

Ad-agency India 3.31 100 100 Innocean Worldwide UK Ltd. (IWUK) Ad-agency UK 12.31 100 100 Innocean Worldwide Europe GmbH

(IWE)

Ad-agency Germany 12.31 100 100 Innocean Worldwide Italy Srl (IWIt) Ad-agency Italy 12.31 100 100 Innocean Worldwide China

Shanghai (IWC Shanghai)

Ad-agency China 12.31 100 100 Innocean Worldwide China

Beijing (IWC Beijing)

Ad-agency China 12.31 100 100 Innocean Worldwide Holdings, Inc.(IWH)

Holdings US 12.31 100 100

Innocean Worldwide Americas, LLC (IWA)

Ad-agency US 12.31 60 60

Innocean Worldwide Australia Pty Ltd.(IWAu)

Ad-agency Australia 12.31 100 100

Innocean Worldwide Rus LLC. (IWR)

Ad-agency Russia 12.31 100 100

Innocean Worldwide Canada Inc. (IWC)

Ad-agency Canada 12.31 100 100

Innocean Worldwide Spain S.L. (IWS)

Ad-agency Spain 12.31 100 100

Innocean Worldwide France (IWF)

Ad-agency France 12.31 100 100

Innocean Worldwide Turkey (IWTr)

Ad-agency Turkey 12.31 100 100

Innocean Worldwide Brazil (IWB)

Ad-agency Brazil 12.31 100 100

Innocean Worldwide Mexico (IWM)

Ad-agency Mexico 12.31 100 100

Innocean Worldwide Middle East & Africa FZ-LLC (IWMENA)

Ad-agency

United Arab Emirates 12.31 100 100

Canvas Worldwide, LLC (CANVAS WW)

Media agency US 12.31 51 51

In addition, four Money Market Trusts, over which the Company has the control, are included as consolidated subsidiaries.

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1. General (cont’d) Condensed financial positions and results of operations of the Company’s consolidated subsidiaries as of and for the years ended December 31, 2016 and 2015 are as follows (Korean won in thousands):

Name of subsidiaries

2016

Assets Liabilities Sales Profit

for the year IWI ￦ 15,961,553 ￦ 6,237,991 ￦ 28,762,290 ￦ 2,256,300IWUK 15,831,246 12,671,766 15,550,867 1,200,956IWE 52,599,366 39,706,198 110,207,832 5,132,541IWIt 21,853,869 18,391,458 14,847,839 1,148,584IWC Shanghai 70,765,279 39,191,500 29,433,216 5,110,217IWC Beijing 1,641,749 685,620 2,649,889 (758,547)IWH (*) 38,741,902 1,390,913 - 7,536,020IWA 419,215,517 381,201,432 317,974,986 24,840,612IWAu 28,379,646 22,589,216 27,445,444 1,824,712IWR 22,984,334 7,817,874 10,232,591 2,158,793IWC 26,950,477 20,628,562 32,334,710 2,672,150IWS 17,372,468 14,972,065 11,613,327 1,153,239IWF 4,520,840 2,848,340 10,232,609 433,687IWTr 3,263,972 2,554,777 2,990,553 218,300IWB 2,995,303 451,055 4,281,585 1,221,329IWM 996,465 743,811 9,622,751 923IWMENA 3,351,032 1,781,947 4,719,134 766,617CANVAS WW 391,181,944 373,866,969 50,844,552 5,486,448 (*) Based on the separate financial statements, where its subsidiary is accounted for as acquisition cost. The financial statements of all subsidiaries, which are used in the preparation of the consolidated financial statements, are prepared for the same reporting periods as the Company’s.

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1. General (cont’d)

2015 Name of

subsidiaries Assets Liabilities Sales Profit

for the year IWI ￦ 12,806,116 ￦ 5,470,471 ￦ 25,009,442 ￦ 1,817,862IWUK 12,983,602 9,738,015 13,770,817 1,359,134IWE 38,850,079 27,105,268 93,549,767 4,662,291IWIt 23,922,503 20,482,429 11,581,927 810,502IWC Shanghai 83,951,040 56,655,770 32,131,601 6,066,054IWC Beijing 7,502,964 5,741,736 7,866,695 51,037IWH(*) 35,417,268 359,079 - 5,370,323IWA 262,617,860 229,748,846 288,298,516 20,044,044IWAu 29,277,192 23,283,077 21,203,477 1,620,367IWR 17,985,625 7,855,732 8,045,361 2,407,700IWC 28,402,872 23,321,709 28,233,263 2,186,931IWS 17,720,968 16,446,829 10,606,843 360,151IWF 3,354,751 2,106,881 8,948,214 299,475IWTr 4,328,036 3,725,975 4,252,689 107,476IWB 2,392,619 387,481 4,172,882 992,751IWM 1,300,886 1,009,844 8,620,595 107,848IWMENA 3,743,911 2,996,417 5,084,628 314,397CANVAS WW 11,251,200 - - - (*) Based on the separate financial statements, where its subsidiary is accounted for as acquisition cost. The financial statements of all subsidiaries, which are used in the preparation of the consolidated financial statements, are prepared for the same reporting periods as the Company’s. Summarized cash flows of non-wholly owned subsidiaries that have material non-controlling interests to the Group as at December 31, 2016 are as follows (Korean won in thousands):

IWA CANVAS WW

Cash flows from operating activities ￦ 5,376,241 ￦ 45,291,324Cash flows from investing activities (48,531) (8,670,694)Cash flows from financing activities (20,882,889) -Effect of exchange rate changes on cash and cash equivalents

1,918,086 1,865,083

Net increase in cash and cash equivalents ￦ (13,637,093) ￦ 38,485,713

Details of non-wholly owned subsidiaries of the Company that have material non-controlling interests as at December 31, 2016 are as follows (Korean won in thousands):

IWA CANVAS WW Ownership percentage of non-controlling interests 40% 49%Non-controlling interests ￦ 15,205,634 ￦ 8,484,338Profit attributable to non-controlling interests 9,936,245 2,688,359

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2. Summary of significant accounting policies 2.1. Basis of consolidated financial statements preparation The Group prepares statutory financial statements in the Korean language in accordance with Korean International Financial Reporting Standards (KIFRS) enacted by the Act on External Audit of Stock Companies. The consolidated financial statements have been prepared on a historical cost basis, except for those items that are separately stated in the accounting policies below, such as financial instruments. The consolidated financial statements are presented in Korean won (KRW), except when otherwise indicated. 2.2. Basis of consolidation The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at December 31, 2016. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has: Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of

the investee) Exposure, or rights, to variable returns from its involvement with the investee The ability to use its power over the investee to affect its returns Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: The contractual arrangement(s) with the other vote holders of the investee Rights arising from other contractual arrangements The Group’s voting rights and potential voting rights The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognized in profit or loss. Any investment retained is recognized at fair value.

9


2.3. Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of KIFRS 1039 Financial Instruments: Recognition and Measurement, is measured at fair value with the changes in fair value recognized in the statement of profit or loss. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests, and any previous interest held over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the CGU retained. 2.4. Investment in associates and joint ventures An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Group’s investments in its associate and joint venture are accounted for using the equity method. Under the equity method, the investment in an associate or a joint venture is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Group’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is not tested for impairment separately.

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2.4. Investment in associates and joint ventures (cont’d) The statement of profit or loss and other comprehensive income reflects the Group’s share of the results of operations of the associate or joint venture. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognized directly in the equity of the associate or joint venture, the Group recognizes its share of any changes, when applicable, in the statement of changes in equity. Unrealized gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture. The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown on the face of the statement of profit or loss and other comprehensive income outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture. The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognize an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognizes the loss as ‘Share of profit of an associate and a joint venture’ in the statement of profit or loss and other comprehensive income. Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss. 2.5. Current versus non-current classification The Group presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is current when it is: Expected to be realized or intended to be sold or consumed in the normal operating cycle Held primarily for the purpose of trading Expected to be realized within twelve months after the reporting period, or Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least

twelve months after the reporting period All other assets are classified as non-current. A liability is current when: It is expected to be settled in the normal operating cycle It is held primarily for the purpose of trading It is due to be settled within twelve months after the reporting period, or There is no unconditional right to defer the settlement of the liability for at least twelve months after the

reporting period The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities.

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2.6. Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is received. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The specific recognition criteria described below must also be met before revenue is recognized. 2.6.1. Rendering of services For advertising agency service, in accordance with the terms of contracts with customers, the received commission is recognized as revenue on an accrual basis, and the advertisement production and other services are recognized as revenue by applying the percentage of completion. However, when the contract outcome cannot be measured reliably, revenue is recognized only to the extent that the expenses incurred are eligible to be recovered. 2.6.2. Sales of goods Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. 2.6.3. Royalties The Group recognizes revenue from royalties on an accrual basis in accordance with the substance of the relevant agreement. 2.6.4. Interest income For all financial instruments measured at amortized cost and interest-bearing financial assets classified as AFS, interest income is recorded using the EIR. The EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in finance income in the statement of profit or loss and other comprehensive income. 2.6.5. Dividends

Revenue is recognized when the Group’s right to receive the payment is established, which is generally when shareholders approve the dividend. 2.6.6. Other revenue

Other revenue is recognized when the revenue has been earned, the amount of revenue can be reliably measured and it is probable that the economic benefits associated with the transaction will flow to the Group. 2.7. Foreign currency translation The Group’s consolidated financial statements are presented in Korean won, which is also the parent company’s functional currency and reporting currency. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rates of exchange at the reporting date.

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2.7. Foreign currency translation (cont’d) Differences arising on settlement or translation of monetary items are recognized in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment of a foreign operation. These are recognized in OCI until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in OCI. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognized in OCI or profit or loss is also recognized in OCI or profit or loss, respectively). On consolidation, the assets and liabilities of foreign operations are translated into Korean won at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognized in OCI. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognized in profit or loss. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date. 2.8. Cash and short-term deposits Cash and short-term deposits in the consolidated statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above. 2.9. Financial instruments – initial recognition and subsequent measurement A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. 2.9.1. Financial assets Initial recognition and measurement Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, AFS financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

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2.9.1. Financial assets (cont’d) Subsequent measurement For purposes of subsequent measurement, financial assets are classified in four categories: 1. Financial assets at fair value through profit or loss 2. Loans and receivables 3. Held-to-maturity investments 4. AFS financial investments Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments as defined by KIFRS 1039. The Group has not designated any financial assets at fair value through profit or loss. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value presented as finance costs (negative net changes in fair value) or finance income (positive net changes in fair value) in the statement of profit or loss and other comprehensive income. Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss. Loans and receivables This category is the most relevant to the Group. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the statement of profit or loss and other comprehensive income. The losses arising from impairment are recognized in the statement of profit or loss and other comprehensive income as finance costs. Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold them to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the EIR, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance income in the statement of profit or loss and other comprehensive income. The losses arising from impairment are recognized in the statement of profit or loss and other comprehensive income as finance costs. Available-for-sale (AFS) financial assets AFS financial assets include equity investments and debt securities. Equity investments classified as AFS are those that are neither classified as held-for-trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial measurement, AFS financial assets are subsequently measured at fair value with unrealized gains or losses recognized in OCI and credited in the AFS reserve until the investment is derecognized, at which time, the cumulative gain or loss is recognized in other operating income, or the investment is determined to be impaired, when the cumulative loss is reclassified from the AFS reserve to the statement of profit or loss and other comprehensive income in other operating costs. Interest earned whilst holding AFS financial assets is reported as interest income using the EIR method.

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2.9.1. Financial assets (cont’d) The Group evaluates whether the ability and intention to sell its AFS financial assets in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets, the Group may elect to reclassify these financial assets if the management has the ability and intention to hold the assets for foreseeable future or until maturity. For a financial asset reclassified from the AFS category, the amount recognized as OCI has been recognized in equity is amortized to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortized cost and the maturity amount is also amortized over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the statement of profit or loss and other comprehensive income. Derecognition A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed from the Group’s consolidated statement of financial position) when: The rights to receive cash flows from the asset have expired, or The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to

pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. 2.9.2. Impairment of financial assets Further disclosures relating to impairment of financial assets are also provided in the following note:

Notes Trade and other receivables 5

The Group assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that has occurred since the initial recognition of the asset (an incurred ‘loss event’), has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortized cost For financial assets carried at amortized cost, the Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred).

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2.9.2. Impairment of financial assets (cont’d) The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognized in the statement of profit or loss and other comprehensive income. Interest income (recorded as finance income in the statement of profit or loss and other comprehensive income) continues to be accrued on the reduced carrying amount using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans, together with the associated allowance, are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to finance costs in the statement of profit or loss and other comprehensive income. Available-for-sale (AFS) financial investments For AFS financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as AFS, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the statement of profit or loss and other comprehensive income – is removed from OCI and recognized in the statement of profit or loss and other comprehensive income. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognized in OCI. In the case of debt instruments classified as AFS, the impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the statement of profit or loss and other comprehensive income. Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the statement of profit or loss and other comprehensive income, the impairment loss is reversed through the statement of profit or loss and other comprehensive income. 2.9.3. Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments. Subsequent measurement The measurement of financial liabilities depends on their classification, as described below: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

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2.9.3. Financial liabilities (cont’d) Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by KIFRS 1039. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognized in the statement of profit or loss and other comprehensive income. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in KIFRS 1039 are satisfied. The Group has not designated any financial liability as at fair value through profit or loss. Loans and borrowings This is the category most relevant to the Group. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit or loss and other comprehensive income. This category generally applies to interest-bearing loans and borrowings. Financial guarantee contracts Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognized initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognized less cumulative amortization. Derecognition A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss and other comprehensive income. 2.9.4. Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously. 2.10. Fair value measurement The Group measures financial instruments such as derivatives, and non-financial assets such as investment properties, at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible by the Group.

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2.10. Fair value measurement (cont’d) The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the input that is significant to the fair value measurement as a whole: Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value

measurement is directly or indirectly observable Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value

measurement is unobservable For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above. Fair-value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are disclosed, are summarized in the following notes:

Notes Quantitative disclosures of fair value measurement hierarchy 28 Investment in unquoted equity shares 8 Financial instruments (including those carried at amortized cost) 28

2.11. Property, plant and equipment Property, plant and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Group depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in profit or loss as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. Refer to significant accounting judgments, estimates and assumptions and provisions for further information about the recognized decommissioning provision. Property, plant and equipment transferred from customers are initially measured at fair value at the date on which control is obtained.

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2.11. Property, plant and equipment (cont’d) Depreciation is computed using the straight-line method based on the estimated useful lives of the assets. The representative useful lives are as follows: Representative useful lives

(years) Structures 8 Equipments 3 – 13 Leasehold improvements 2 – 10 Others 3 – 10 An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognized. The Group reviews the depreciation method, the estimated useful lives and residual values of property, plant and equipment 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. 2.12. Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangibles, excluding capitalized development costs, are not capitalized and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of profit or loss and other comprehensive income in the expense category that is consistent with the function of the intangible assets. Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the CGU level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit or loss and other comprehensive income when the asset is derecognized. Amortization is computed using the straight-line method based on the estimated useful lives of the assets. The representative useful lives are as follows: Representative useful lives

(years) Others 30

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2.13. Impairment of non-financial assets

The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Fair value is determined using an appropriate valuation model using stock prices of subsidiaries traded in the open market or other available fair value measurement indicators. The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year. Impairment losses of continuing operations, including impairment on inventories, are recognized in the statement of profit or loss and other comprehensive income in expense categories consistent with the function of the impaired asset, except for properties previously revalued with the revaluation taken to OCI. For such properties, the impairment is recognized in OCI up to the amount of any previous revaluation. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit or loss and other comprehensive income unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase. The following assets have specific characteristics for impairment testing: 2.13.1. Goodwill Goodwill is tested for impairment annually as at December 31 and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. 2.13.2. Intangible assets

Intangible assets with indefinite useful lives are tested for impairment annually as at December 31 at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired. 2.14. Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

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2.14. Leases (cont’d) Group as a lessee A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease. Finance leases are capitalized at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the statement of profit or loss. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. An operating lease is a lease other than a finance lease. Operating lease payments are recognized as an operating expense in the statement of profit or loss on a straight-line basis over the lease term. Group as a lessor Leases in which the Group does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned. 2.15. Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. 2.16. Pension benefits and other post-employment benefits

The Group operates a defined benefit pension plan. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method. Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognized immediately in the statement of financial position with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods. Past service costs are recognized in profit or loss on the earlier of:

The date of the plan amendment or curtailment, and The date that the Group recognizes related restructuring costs Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognizes the following changes in the net defined benefit obligation under ‘cost of sales’ and ‘selling and administrative expenses’ in the consolidated statement of profit or loss and other comprehensive income.

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2.17. Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit or loss and other comprehensive income net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost. 2.18. Taxes 2.18.1. Current income tax Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. Current income tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit or loss and other comprehensive income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. 2.18.2. Deferred tax Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognized for all taxable temporary differences, except: When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a

transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future

Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except: When the deferred tax asset relating to the deductible temporary difference arises from the initial

recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized

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2.18.2. Deferred tax (cont’d) The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. On the other hand, the reduced amount is reversed within the range if the possibility of taxable income that is enough to be used becomes high. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognized subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognized in profit or loss. 2.19. Derivative financial instruments and hedge accounting 2.19.1. Initial recognition and subsequent measurement The Group uses derivative financial instruments, such as forward currency contracts, interest rate swaps and forward commodity contracts, to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognized in OCI and later reclassified to profit or loss when the hedge item affects profit or loss. For the purpose of hedge accounting, hedges are classified as: Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or

liability or an unrecognized firm commitment Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a

particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment

Hedges of a net investment in a foreign operation At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Hedges that meet the strict criteria for hedge accounting are accounted for, as described below:

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2.19.2. Fair value hedges The change in the fair value of a hedging derivative is recognized in the statement of profit or loss and other comprehensive income as finance costs. The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in the statement of profit or loss and other comprehensive income as finance costs. For fair value hedges relating to items carried at amortized cost, any adjustment to carrying value is amortized through profit or loss over the remaining term of the hedge using the EIR method. EIR amortization may begin as soon as an adjustment exists and no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedged item is derecognized, the unamortized fair value is recognized immediately in profit or loss. When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in profit and loss. 2.19.3. Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognized in OCI in the cash flow hedge reserve, while any ineffective portion is recognized immediately in the statement of profit or loss and other comprehensive income. Amounts recognized as OCI are transferred to profit or loss when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or non-financial liability, the amounts recognized as OCI are transferred to the initial carrying amount of the non-financial asset or liability. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover (as part of the hedging strategy), or if its designation as a hedge is revoked, or when the hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss previously recognized in OCI remains separately in equity until the forecast transaction occurs or the foreign currency firm commitment is met. 2.19.4. Hedges of a net investment Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognized as OCI while any gains or losses relating to the ineffective portion are recognized in the statement of profit or loss and other comprehensive income. On disposal of the foreign operation, the cumulative value of any such gains or losses recorded in equity is transferred to the statement of profit or loss and other comprehensive income.

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2.20. New and amended standards and interpretations The Group applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after January 1, 2015. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. The nature and the effect of these changes are disclosed below. Although these new standards and amendments were applied for the first time in 2015, they did not have a material impact on the annual consolidated financial statements of the Group. The nature and the impact of each new standard or amendment is described below: KIFRS 1114 Regulatory Deferral Accounts

KIFRS 1114 is an optional standard that allows an entity, whose activities are subject to rate-regulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of KIFRS. Entities that adopt KIFRS 1114 must present the regulatory deferral accounts as separate line items on the statement of financial position and present movements in these account balances as separate line items in the statement of profit or loss and OCI. The standard requires disclosure of the nature of, and risks associated with, the entity’s rate-regulation and the effects of that rate-regulation on its financial statements. Since the Group is an existing KIFRS preparer and is not involved in any rate-regulated activities, this standard does not apply.

Amendments to KIFRS 1111 Joint Arrangements: Accounting for Acquisitions of Interests

The amendments to KIFRS 1111 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business, must apply the relevant KIFRS 1103 Business Combinations principles for business combination accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation if joint control is retained. In addition, a scope exclusion has been added to KIFRS 1111 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are applied prospectively. These amendments do not have any impact on the Group as there has been no interest acquired in a joint operation during the period.

Amendments to KIFRS 1016 and KIFRS 1038 Clarification of Acceptable Methods of Depreciation and Amortisation

The amendments clarify the principle in KIFRS 1016 Property, Plant and Equipment and KIFRS 1038 Intangible Assets that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is a part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are applied prospectively and do not have any impact on the Group, given that it has not used a revenue-based method to depreciate its non-current assets.

Amendments to KIFRS 1016 and KIFRS 1041 Agriculture: Bearer Plants The amendments change the accounting requirements for biological assets that meet the definition of bearer plants. Under the amendments, biological assets that meet the definition of bearer plants will no longer be within the scope of KIFRS 1041 Agriculture. Instead, KIFRS 1016 will apply. After initial recognition, bearer plants will be measured under KIFRS 1016 at accumulated cost (before maturity) and using either the cost model or revaluation model (after maturity). The amendments also require that produce that grows on bearer plants will remain in the scope of KIFRS 1041 measured at fair value less costs to sell. For government grants related to bearer plants, KIFRS 1020 Accounting for Government Grants and Disclosure of Government Assistance will apply. The amendments are applied retrospectively and do not have any impact on the Group as it does not have any bearer plants.

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2.20. New and amended standards and interpretations (cont’d) Annual Improvements 2012-2014 Cycle These amendments do not have any impact on the Group’s consolidated financial statements. The improvements include: KIFRS 1105 Non-current Assets Held for Sale and Discontinued Operations

Assets (or disposal groups) are generally disposed of either through sale or distribution to the owners. The amendment clarifies that changing from one of these disposal methods to the other would not be considered a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in KIFRS 1105. This amendment is applied prospectively.

KIFRS 1107 Financial Instruments: Disclosures

(i) Servicing contracts The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in KIFRS 1107 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be made retrospectively. However, the required disclosures need not be provided for any period beginning before the annual period in which the entity first applies the amendments. (ii) Applicability of the amendments to KIFRS 1107 to condensed interim financial statements The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. This amendment is applied retrospectively.

The amendment clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. This amendment is applied prospectively. KIFRS 1034 Interim Financial Reporting

The amendment clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report (e.g., in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment is applied retrospectively.

Amendments to KIFRS 1001 Disclosure Initiative The amendments to KIFRS 1001 clarify, rather than significantly change, existing KIFRS 1001 requirements. The amendments clarify:

The materiality requirements in KIFRS 1001 That specific line items in the statement(s) of profit or loss and OCI and the statement of financial position

may be disaggregated That entities have flexibility as to the order in which they present the notes to financial statements That the share of OCI of associates and joint ventures accounted for using the equity method must be

presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss

KIFRS 1019 Employee Benefits

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2.20. New and amended standards and interpretations (cont’d) Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI. These amendments do not have any impact on the Group.

Amendments to KIFRS 1110, KIFRS 1112 and KIFRS 1028 Investment Entities: Applying the Consolidation Exception

The amendments address issues that have arisen in applying the investment entities exception under KIFRS 1110 Consolidated Financial Statements. The amendments to KIFRS 1110 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value.

Furthermore, the amendments to KIFRS 1110 clarify that only a subsidiary of an investment entity that is not an investment entity itself and that

provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The

amendments to KIFRS 1028 Investments in Associates and Joint Ventures allow the investor, when applying the equity method, to retain the fair

value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries.

The amendments require additional disclosures of information on construction contracts when the percentage of work completed is measured based on the ratio of the total costs incurred to date to the total estimated contract costs, and the contract revenue exceeds 5% of the preceding year’s total revenue. The amendments are effective for annual periods beginning on or after 1 January 2016, and require prospective application in

the year in which an entity adopts it for the first time.

These amendments are not relevant for the Group as it did not enter into any construction contract during the current period.

2.21. Significant accounting judgments, estimates and assumptions

The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Other disclosures relating to the Group’s exposure to risks and uncertainties includes: • Retirement benefit plan Note 15 • Risk management Note 30

2.21.1. Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur. Revenue recognition

The Group applies the percentage of completion method when accounting for advertising production and a certain services. The percentage of completion method is applied by calculating the ratio of the cumulative costs incurred compared to total estimated costs that requires management’s judgment.

KIFRS 1011 Construction Contract and KIFRS 2115 Agreements for the Construction of Real Estate

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2.21.1. Estimates and assumptions (cont’d) Fair value measurement of financial instruments When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments. Measurement and useful lives of property, plant, equipment or intangible assets If the Group acquires property, plant, equipment or intangible assets from business combination, it is required to estimate the fair value of the assets at the acquisition date and determine the useful lives of such assets for depreciation and amortization.

Goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Defined benefit plans (pension benefits) The cost of the defined benefit pension plan and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. In determining the appropriate discount rate, management considers the interest rates of corporate bonds in currencies consistent with the currencies of the post-employment benefit obligation with at least an ‘AA’ rating or above, as set by an internationally acknowledged rating agency. The mortality rate is based on publicly available mortality tables for the specific countries. Future salary increases and pension increases are based on expected future inflation rates for the respective countries. Further details about pension obligations are provided in Note 15. Taxes Deferred tax assets are recognized for unused tax credit to the extent that it is probable that taxable profit will be available against which the tax credit can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. The Group has \15,350 million (December 31, 2015: \11,994 million) of tax credit carried forward. But this tax credit may not be used to offset taxable income elsewhere in the Group. the Group has determined that it cannot recognize deferred tax assets on the tax credit carried forward. Provision for decommissioning As part of the identification and measurement of assets and liabilities for the acquisition of Extinguishers Limited in 2016, the Group has recognized a provision for decommissioning obligations associated with a office owned by Extinguishers Limited. In determining the fair value of the provision, assumptions and estimates are made in relation to discount rates, the expected cost to dismantle and remove the office from the site and the expected timing of those costs. The carrying amount of the provision as at December 31, 2016 was \678 million.

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2.22. Standards issued but not yet effective

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

KIFRS 1109 Financial Instruments The KASB issued the final version of KIFRS 1109 Financial Instruments that replaces KIFRS 1039 Financial Instruments: Recognition and Measurement and all previous versions of KIFRS 1109. KIFRS 1109 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. KIFRS 1109 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Group plans to adopt the new standard on the required effective date. The impact on its consolidated financial statements is as follows: In connection with the adoption of KIFRS 1109, the Group has not yet undertaken any update on its internal control processes or a change in the accounting system related to the reporting of financial instruments, and has not been able to analyze the financial impact of the new standard on the financial statements; however, the general impacts on the financial statements are as follows: (i) Financial asset classification and measurement The new KIFRS 1109 requires a financial instrument to be classified and measured subsequently at amortized cost, fair value through other comprehensive income (FVOCI), or fair value through profit or loss (FVTPL), on the basis of the holder’s business model and instrument’s contractual cash flow characteristics as shown below. The requirements should be applied to an entire financial asset, even if it contains an embedded derivative. That is, in contrast with the requirements of KIFRS 1039, a derivative embedded within a hybrid (combined) contract containing a financial asset host is not accounted for separately Contractual cash flow characteristics

Business model Composed solely of principal

and interest For other cases

Purpose of collecting contractual cash flows

Measured at amortized cost (*1)

Measured at FVTPL (*2)

Purpose of collecting and selling contractual cash flows

Measured at FVOCI (*1)

Purpose of selling, others Measured at FVTPL (*1) An entity may irrevocably designate a financial asset as measured at FVTPL if doing so eliminates or reduces an accounting mismatch. (*2) An entity may make an irrevocable election to present in other comprehensive income changes in the fair value of an investment in an equity instrument that is not held for trading. The requirements for classifying the financial assets as measured at amortized cost or FVOCI under KIFRS 1109 are more stringent than the requirements of the current KIFRS 1039; as a result, the increase in the proportion of financial assets subject to FVTPL measurement may increase the volatility in profit or loss upon adoption of KIFRS 1109. As at December 31, 2016, the Group has loans and receivables amounting to \1,246,211 million, AFS financial assets amounting to \2,145 million and financial assets at FVTPL amounting to \280,162 million. According to KIFRS 1109, the contractual terms of the debt instruments give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, and the standard requires debt instruments held to collect contractual cash flows to be measured at amortized cost. As at December 31, 2016, the Group measures Loans and receivables of \1,246,211 million at amortized cost.

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2.22. Standards issued but not yet effective (cont’d) According to KIFRS 1109, the contractual terms of the debt instruments give rise on specified dates to cash on the principal amount outstanding, and the standard requires debt instruments held to collect and sell flows that are solely payments of principal and interest contractual cash flows to be measured at FVOCI. As at December 31, 2016, the Group has debt securities classified as AFS financial assets amounting to \ 1,990 million. This is an AFS financial asset in which the host contract is a debt instrument after separating the embedded derivative from the composite instrument. According to KIFRS 1109, an entity may make an irrevocable election to present in other comprehensive income changes in the fair value of an investment in an equity instrument that is not held for trading. Items of comprehensive income are not subsequently recycled to profit or loss. As at December 31, 2016, the Group holds equity instruments of \154 million classified as available-for-sale financial assets.. According to KIFRS 1109, the Company measures the following instruments at FVTPL: 1) cash flows that do not represent solely payments of principal and interest on the principal amount outstanding; or 2) debt instruments held for the purpose of trading; and 3) equity instruments that are not designated as measured at FVOCI. The Group has debt and equity instruments of \280,162 million classified as financial assets measured at FVTPL as at December 31, 2016. (ii) Financial liabilities classification and measurement In KIFRS 1109, fair value changes of financial liabilities at FVTPL attributable to changes in credit risk of the liability shall be presented in other comprehensive income, not in profit or loss. Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss. However, the new standard allows the recognition of the full amount of changes in the fair value in profit or loss only if the presentation of the changes in the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. The fair value changes of financial liabilities designated at FVTPL that were previously recognized as profit or loss in KIFRS 1039 will partially be recorded as other comprehensive income and thus profit or loss related to the evaluation of financial liabilities may decrease.

As of December 31, 2016, the Group has designated \9 million of the financial liabilities as FVTPL among \

933,166 million of financial liabilities. Those \9 million is recognized as loss in relation to the financial liabilities which are measured at FVTPL during the year.

(iii) Impairment: financial assets and contract assets In KIFRS 1039, impairment is recognized only when there is objective evidence of impairment based on incurred loss model. In the new KIFRS 1109, impairment of debt instruments, lease bonds, contract assets, loan commitments and financial guarantee contracts that are measured at amortized costs or at FVOCI is recognized based on the expected credit loss (ECL) impairment model. KIFRS 1109 outlines a ‘three-stage’ model for impairment based on changes in credit risk since initial recognition. Loss allowance is measured based on the 12-month ECL or life-time ECL which allows early recognition of credit loss compared to the incurred loss model of KIFRS 1039.

Classification(*1) Loss allowance

Stage 1 Assets with no significant increase in credit risk since initial recognition (*2)

12-month ECL: Expected credit losses that result from default events that are possible within 12 months after the reporting date.

Stage 2 Assets with significant increase in credit risk since initial recognition

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

Stage 3 Credit-impaired assets

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2.22. Standards issued but not yet effective (cont’d)

(*1) For trade receivables or contract assets in accordance with KIFRS 1115 Revenue from Contracts with Customers, which does not contain a significant financing component, the Group is to measure the loss allowance at an amount equal to lifetime expected credit losses; however, if it contains a significant financial component, the Group can choose as its accounting policy to measure the loss allowance at an amount equal to lifetime expected credit losses. For lease receivables, the Group may choose as its accounting policy to measure the loss allowance at an amount equal to lifetime expected credit losses

(*2) Low credit risk at the end of reporting period may be considered as no significant increase in credit risk.

In KIFRS 1109, only the accumulated changes in the life-time ECL after initial recognition are taken into

account as loss allowance in case credit is impaired at initial recognition of financial assets. As at December 31, 2016, the Group has loans and receivables amounting to \ 1,246,211 million measured at amortized cost and debt instruments classified as AFS financial assets and measured at FVTPL amounting to \ 1,990 million. Allowance for losses on these assets is set at \ 458 million.

KIFRS 1115 Revenue from Contracts with Customers

KIFRS 1115 establishes a five-step model to account for revenue arising from contracts with customers. Under KIFRS 1115, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under KIFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Group plans to adopt the new standard on the required effective date using the full retrospective method. During 2016, the Group performed a preliminary assessment of KIFRS 1115, which is subject to changes arising from a more detailed ongoing analysis. Current KIFRS 1018 provides revenue recognition criteria for different types of transactions such as sales of goods, provision of services, interest income, royalty income, dividend income, and construction contracts. However under the new KIFRS 1115, revenue is recognized by applying a five-step revenue recognition model to all types of contracts.

Five-step revenue recognition model is as follows: 1. Identify the contract(s) with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognize revenue when (or as) the entity satisfies a performance obligation As at December 31, 2016, the Group has not yet undertaken any update on its internal control processes or a change in the accounting system in relation to the adoption of KIFRS 1115, and has not been able to analyze the impact of the adoption of KIFRS on the financial statements. The Group is planning to analyze the financial impact of adoption of KIFRS 1115 in 2017. The general effects on the consolidated financial statements are as follows:

1) Progress measurement using input method.

Advertising production services of the Group include advertising production, digital, outdoor advertising, events, promotions, and sports marketing. During fiscal year 2016, revenue from advertising production services were \814,855 million, representing 77% of total consolidated revenues.

The Group provide advertising production services by requesting advertisement production, event, promotion, marketing, and others to outsiders, and outsourcing costs account for 96% of the total advertising production cost.

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2.22. Standards issued but not yet effective (cont’d)

In accordance with KIFRS 1115, a faithful depiction of an entity’s performance might be to recognize revenue at an amount equal to the cost of a

good used to satisfy a performance obligation if the entity expects at contract inception that all of the following conditions would be met:

(i) The good is not distinct;

(ii) The customer is expected to obtain control of the good significantly before receiving services related to the good;

(iii) The cost of the transferred good is significant relative to the total expected costs to completely satisfy the performance obligation;

and

(iv) The entity procures the good from a third party and is not significantly involved in designing and manufacturing the good.

2) Principal and Agent The Group provides advertising services according to the contract with the customer. The Group recognized \ 236,706 million, representing 23% of total revenue, as "agent" at the time of the transaction

Amendments to KIFRS 1110 and KIFRS 1028 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

The amendments address the conflict between KIFRS 1110 and KIFRS 1028 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in KIFRS 1103, between an investor and its associate or joint venture, is recognized in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognized only to the extent of unrelated investors’ interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively. The Group will apply these amendments when they become effective. Amendments to KIFRS 1007 Statement of Cash Flows: Disclosure Initiative

The amendments to KIFRS 1007 Statement of Cash Flows are part of the IASB’s Disclosure Initiative and require an entity to provide disclosures that

enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows

and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods.

These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. Application of the

amendments will result in additional disclosures provided by the Group.

Amendments to KIFRS 1012 Recognition of Deferred Tax Assets for Unrealised Losses

The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make

deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should

determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their

carrying amount.

Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of

the earliest comparative period may be recognized in the opening retained earnings (or in another component of equity, as appropriate), without

allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact. These

amendments are effective for annual periods beginning on or after 1 January 2017 with early application permitted. If an entity applies the

amendments for an earlier period, it must disclose that fact. These amendments are not expected to have any impact on the Group.

32


2.22. Standards issued but not yet effective (cont’d) Amendments to KIFRS 1102 Classification and Measurement of Share-based Payment Transactions The IASB issued amendments to KIFRS 1102 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted. The Group is assessing the potential effect of the amendments on its consolidated financial statements.

2.23. Effective date of the consolidated financial statements and the approval authority

The consolidated financial statements were approved by the Board of Directors of the parent company on January 26, 2017 for submission of the regular general shareholders' meeting.

3. Restricted financial instruments Financial instruments with withdrawal restrictions as at December 31, 2016 and 2015 are as follows (Korean won in thousands):

Description 2016 2015 Long-term financial instruments Guarantee deposits for

checking accounts ￦ 6,000 ￦ 6,000

Long-term financial institution deposits 338,510 331,154

￦ 344,510 ￦ 337,154 4. Financial instruments Financial instruments as at December 31, 2016 and 2015 consist of the following (Korean won in thousands):

Description 2016 2015 Short-term financial instruments Time deposits ￦ 157,475,187 ￦ 190,445,419

FVTPL 279,978,933 154,480,490 ￦ 437,454,120 ￦ 344,925,909

Description 2016 2015 Long-term financial instruments Guarantee deposit for

checking accounts ￦ 6,000 ￦ 6,000Long-term financial institution deposits 338,510 331,154

￦ 344,510 ￦ 337,154

33


5. Trade and other receivables Trade and other receivables as at December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016 2015 Trade receivables ￦ 841,689,543 ￦ 694,264,490Less: allowance for doubtful accounts (443,743) (617,272)Other receivables 5,777,688 7,158,421Less: allowance for doubtful accounts (14,145) (45,279) ￦ 847,009,343 ￦ 700,760,360 The changes in allowance for doubtful accounts for the years ended December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016 Trade receivables Other receivables

Beginning balance ￦ 617,272 ￦ 45,279Reversal of allowance for doubtful accounts (91,597) (31,134)Write-off (81,949) -Foreign exchange differences 17 -Ending balance ￦ 443,743 ￦ 14,145

2015 Trade receivables Other receivables

Beginning balance ￦ 7,181,210 ￦ 22,353Expenses for allowance for doubtful accounts 216,977 22,925Write-off (6,720,677) -Foreign exchange differences (60,238) 1Ending balance ￦ 617,272 ￦ 45,279

The aging analysis of trade and other receivables that is past due but not impaired as at December 31, 2016 and 2015 is as follows (Korean won in thousands): 2016

Less than 90 days

Over than 90 days, less than

180 days Over than 180

days Total Trade receivables ￦ 449,304,786 ￦ 5,397,973 ￦ 1,684,512 ￦ 456,387,271Other receivables 205,527 - 6,521 212,048

2015

Less than 90 days

Over than 90 days, less than

180 days Over than 180

days Total Trade receivables ￦ 73,013,392 ￦ 3,678,997 ￦ 1,279,052 ￦ 77,971,441Other receivables 50,726 16,732 33,016 100,474 The group accounted for allowance for doubtful accounts amounting to ￦457,888 thousand and ￦662,551 thousand as at December 31, 2016 and 2015 respectively, by the collective impairment test.

34


6. Other financial assets Other financial assets as at December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016 2015 Current Non-current Current Non-current

Contracts on currency forwards ￦ - ￦ - ￦ 3,273 ￦ -

Stock warrants 182,881 - 182,881 -Accrued income 1,511,810 - 1,725,434 -Leasehold deposits 322,334 6,983,035 42,488 5,095,558Short-term loans 1,208,500 - 1,172,000 -Other financial assets 200,000 - - - ￦ 3,425,525 ￦ 6,983,035 ￦ 3,126,076 ￦ 5,095,558 7. Other assets Other assets as at December 31, 2016 and 2015 consist of the following (Korean won in thousands):


Due from customers for contract work ￦ 5,838,542 ￦ - ￦ 11,634,313 ￦ -

Advanced payments 16,188,863 50,944 7,865,788 -Prepaid expenses 2,436,809 40,667 3,133,215 50,982Prepaid value added tax 847,702 - 466,659 -Others 3,499,021 - 3,819,984 - ￦ 28,810,937 ￦ 91,611 ￦ 26,919,959 ￦ 50,982 8. AFS financial assets AFS financial assets as at December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016 2015

Ownership percentage (%)

Amortized cost

Valuation difference Book value

Book value

Non-marketable securities:

ISU-S&M Contents Investment Fund(*)

5 ￦ 26,688 ￦ - ￦ 26,688

￦ 150,000

D Mate Communications Co., Ltd

14.79 59,160 - 59,160

-

Others

- 68,451 - 68,451

-

Debt securities: The Education Co., Ltd.

- 2,000,000 (9,766) 1,990,234 1,983,218

￦ 2,154,299 ￦ (9,766) ￦ 2,144,533 ￦ 2,133,218 (*) Due to the investment fund period expiration, interim distribution of ￦123,312 thousand in equity investments received.

35


9. Investments in joint venture and associates Investments in joint venture and associates as at December 31, 2016 and 2015 are as follows (Korean won in thousands):

Nature ofbusiness Location

2016 2015

OwnershipPercentage

(%) Book value Book value

Joint venture: Beijing Innocean-CBAC Advertising Co., Ltd. (ICBAC) (*)

Ad-agency China 51.00 ￦ 8,942,211 ￦ 5,882,419

Associates: Mate Communications Co., Ltd. Ad-agency Korea 28.31 5,545,751 5,645,504Inspirecorp. Co., Ltd. Education Korea 29.08 189,184 209,317UNION Contents Value-Up

Investment Fund

Investment Korea 27.27 4,494,458 3,178,699 ￦ 19,171,604 ￦ 14,915,939 (*) ICBAC is categorized as a joint venture although the Group owns the majority of shares, because the Group does not have control over the entity by virtue of an agreement with the other investors. The changes in investments in joint venture and associates for the years ended December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016

Beginning of the year

Share of profits for the year Others

End of the year

Joint venture: ICBAC ￦ 5,882,419 ￦ 3,253,100 ￦ (193,308) ￦ 8,942,211

Associates: Mate Communications

Co., Ltd. 5,645,504 190,247 (290,000) 5,545,751Inspirecorp. Co., Ltd. 209,317 (20,133) - 189,184UNION Contents Value-Up Investment Fund 3,178,699 1,315,759 - 4,494,458

￦ 14,915,939 ￦ 4,738,973 ￦ (483,308) ￦ 19,171,604

2015

Beginning of the year

Dividends

Share of profitsfor the year Others

End of the year

Joint venture: ICBAC ￦ 5,945,479 ￦ (4,137,534) ￦ 4,040,832 ￦ 33,642 ￦ 5,882,419

Associates: Mate Communications

Co., Ltd. 5,048,632 - 596,872 - 5,645,504Inspirecorp. Co., Ltd. 232,322 - (23,005) - 209,317UNION Contents Value-

Up Investment Fund 2,985,087 - 193,612 - 3,178,699

￦ 14,211,520 ￦ (4,137,534) ￦ 4,808,311 ￦ 33,642 ￦ 14,915,939

36


9. Investments in joint venture and associates (cont’d) Condensed financial information of the Group’s joint venture and associates as of and for the years ended December 31, 2016 and 2015 follows (Korean won in thousands):

2016

Current assetsNon-current

assets Current liabilities

Non-current liabilities

Joint venture: ICBAC ￦ 77,993,579 ￦ 81,033 ￦ 60,540,862 ￦ -

Associates: Mate Communications Co., Ltd. 20,167,421 1,855,173 6,983,084 -Inspirecorp. Co., Ltd. 27,927 38,082 109,962 -UNION Contents Value-Up Investment Fund 16,536,896 - 57,212 -

2016

Sales Profit for the

year

Other comprehensive

Income

Total comprehensive

income Joint venture: ICBAC ￦ 35,948,988 ￦ 6,378,628 ￦ (379,034) ￦ 5,999,594

Associates: Mate Communications Co., Ltd. 19,541,150 647,654 - 647,654Inspirecorp. Co., Ltd. 215,064 (69,237) - (69,237)UNION Contents Value-Up Investment Fund 5,899,399 5,600,812 - 5,600,812

2015

Current assetsNon-current

assets Current liabilities

Non-current liabilities

Joint venture: ICBAC ￦ 48,567,478 ￦ 78,481 ￦ 37,111,804 ￦ -

Associates: Mate Communications Co., Ltd. 16,888,536 2,047,219 3,543,898 -Inspirecorp. Co., Ltd. 34,723 54,346 63,786 -UNION Contents Value-Up Investment Fund 11,655,229 - - -

2015

Sales Profit for the

year

Other comprehensive

Income

Total comprehensive

income Joint venture: ICBAC ￦ 32,427,894 ￦ 7,923,201 ￦ 65,965 ￦ 7,989,165

Associates: Mate Communications Co., Ltd. 20,223,392 2,108,246 - 2,108,246Inspirecorp. Co., Ltd. 228,581 (79,096) - (79,096)UNION Contents Value-Up Investment Fund 827,296 583,823 - 583,823

37


9. Investments in joint venture and associates (cont’d) Condensed additional financial information of the Group’s joint venture as of and for the years ended December 31, 2016 and 2015 is as follows (Korean won in thousands):

2016

Cash and cash

equivalents

Current financial liabilities

Non-currentfinancial liabilities

Depreciationand

amortizationInterest income

Interest expenses

Income tax expense

ICBAC ￦ 18,379,612 ￦ 60,540,862 ￦ - ￦ 31,998 ￦ 343,669 ￦ - ￦ 2,148,858

2015

Cash and cash

equivalents

Current financial liabilities

Non-currentfinancial liabilities

Depreciation and

amortizationInterest income

Interest expenses

Income tax expense

ICBAC ￦ 45,155,498 ￦ 37,111,804 ￦ - ￦ 59,636 ￦ 330,719 ￦ - ￦ 2,698,962

Reconciliations of the Group’s share of net assets of the Group’s joint venture and associates to their carrying amounts as at December 31, 2016 and 2015 are as follows (Korean won in thousands): 2016

Net asset Ownership

percentage (%) Group’s share of

net asset Goodwill Book value Joint venture:

ICBAC ￦ 17,533,749 51.00 ￦ 8,942,211 ￦ - ￦ 8,942,211Associates:

Mate Communications Co., Ltd. 15,039,510 28.31 4,257,715 1,288,036 5,545,751Inspirecorp. Co., Ltd. (43,954) 29.08 (12,775) 201,959 189,184UNION Contents Value-Up Investment Fund 16,479,684 27.27 4,494,458 - 4,494,458

2015

Net asset Ownership

percentage (%) Group’s share of

net asset Goodwill Book value Joint venture:

ICBAC ￦ 11,534,155 51.00 ￦ 5,882,419 ￦ - ￦ 5,882,419Associates:

Mate Communications Co., Ltd. 15,391,857 28.31 4,357,468 1,288,036 5,645,504Inspirecorp. Co., Ltd. 25,283 29.08 7,358 201,959 209,317UNION Contents Value-Up Investment Fund 11,655,229 27.27 3,178,699 - 3,178,699

10. Property, plant and equipment Property, plant and equipment as at December 31, 2016 and 2015 consist of the following (Korean won in thousands): 2016

Land Structures Equipments Leasehold

improvements Others

Total

Acquisition cost ￦ 10,424,499 ￦ 1,095,113 ￦ 23,438,443 ￦ 23,702,109 ￦ 2,522,614 ￦ 61,182,778Accumulated depreciation - (201,902) (16,279,831) (12,656,846) (889,734) (30,028,313)Book value ￦ 10,424,499 ￦ 893,211 ￦ 7,158,612 ￦ 11,045,263 ￦ 1,632,880 ￦ 31,154,465

2015

Land Structures Equipments Leasehold

improvements Others

Total

Acquisition cost ￦ 10,419,428 ￦ 192,500 ￦ 20,459,613 ￦ 13,697,818 ￦ 1,111,435 ￦ 45,880,794Accumulated depreciation - (187,184) (13,988,312) (10,448,307) (694,861) (25,318,664)Book value ￦ 10,419,428 ￦ 5,316 ￦ 6,471,301 ￦ 3,249,511 ￦ 416,574 ￦ 20,562,130

38


10. Property, plant and equipment (cont’d) The changes in property, plant and equipment (“PP&E”) for the years ended December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016

Beginning of

the year Acquisitions Disposals Depreciation Others End of the year

Land ￦ 10,419,428 ￦ 5,071 ￦ - ￦ - ￦ - ￦ 10,424,499Structures 5,316 902,613 - (14,718) - 893,211Equipments 6,471,301 3,182,536 (51,436) (2,518,063) 74,274 7,158,612Leasehold improvements 3,249,511 9,516,953 - (2,063,377) 342,176 11,045,263Others 416,574 1,475,863 - (312,926) 53,369 1,632,880 ￦ 20,562,130 ￦ 15,083,036 ￦ (51,436) ￦ (4,909,084) ￦ 469,819 ￦ 31,154,465

2015

Beginning of

the year Acquisitions Disposals Depreciation Others End of the year

Land ￦ - ￦ 10,419,428 ￦ - ￦ - ￦ - ￦ 10,419,428Structures 69,510 - - (64,194) - 5,316Equipments 6,010,776 3,021,447 (37,896) (2,480,508) (42,518) 6,471,301Leasehold improvements 4,737,251 560,238 - (2,003,110) (44,868) 3,249,511Others 382,240 262,991 (10,550) (189,060) (29,047) 416,574 ￦ 11,199,777 ￦ 14,264,104 ￦ (48,446) ￦ (4,736,872) ￦ (116,433) ￦ 20,562,130

11. Intangible assets Intangible assets as at December 31, 2016 and 2015 consist of the following (Korean won in thousands): 2016 2015

Acquisition costAccumulated

amortization (*) Book value Acquisition cost

Accumulated Amortization (*) Book value

Goodwill ￦ 32,522,700 ￦ (3,755,597) ￦ 28,767,103 ￦ 31,833,601 ￦ - ￦ 31,833,601Software 3,017,631 (2,099,879) 917,752 2,305,575 (1,726,565) 579,010Membership 10,842,692 (642,108) 10,200,584 11,538,252 (812,708) 10,725,544Customer

relationships

16,919,000 (1,126,926) 15,792,074 16,408,000 (682,690) 15,725,310Others 6,223,268 (1,694,787) 4,528,481 6,193,158 (1,491,987) 4,701,171 ￦ 69,525,291 ￦ (9,319,297) ￦ 60,205,994 ￦ 68,278,586 ￦ (4,713,950) ￦ 63,564,636

(*) Accumulated amortization of the membership consists of only accumulated impairment.

39


11. Intangible assets (cont’d) The changes in intangible assets for the year ended December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016

Beginning of the year Acquisition Disposals Amortization Impairment loss Others End of year

Goodwill ￦ 31,833,601 ￦ - ￦ - ￦ - ￦ (3,725,684) ￦ 659,186 ￦ 28,767,103 Software 579,010 663,720 - (345,021) - 20,043 917,752 Membership 10,725,544 1,022,000 (1,494,960) - (52,000) - 10,200,584 Customer relationships 15,725,310 - - (406,175) - 472,939 15,792,074 Others 4,701,171 962 - (173,640) - (12) 4,528,481 ￦ 63,564,636 ￦ 1,686,682 ￦ (1,494,960) ￦ (924,836) ￦ (3,777,684) ￦ 1,152,156 ￦ 60,205,994

2015

Beginning of the year Acquisition Disposals Amortization

Impairment loss

Acquisitions through

business combinations Others End of year

Goodwill ￦ 25,358,287 ￦ - ￦ - ￦ - ￦ - ￦ 2,205,000 ￦ 4,270,314 ￦ 31,833,601 Software 657,358 175,574 (32,238) (222,970) - - 1,286 579,010 Membership 10,013,644 1,401,900 (550,000) - (140,000) - - 10,725,544 Customer relationships 14,642,752 - - (528,029) - - 1,610,587 15,725,310 Others 5,493,524 - - (217,630) - 44,000 (618,723) 4,701,171 ￦ 56,165,565 ￦ 1,577,474 ￦ (582,238) ￦ (968,629) ￦ (140,000) ￦ 2,249,000 ￦ 5,263,464 ￦ 63,564,636

40


11. Intangible assets (cont’d) Impairment test of goodwill Goodwill of the Group as at December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016 2015 IWA (*) ￦ 26,562,103 ￦ 25,759,855IWC Beijing (**) - 3,868,746Research and consulting division of GASK

Co.,Ltd. 2,205,000 2,205,000 ￦ 28,767,103 ￦ 31,833,601 (*) Changes of book value are due to the effect of foreign currency exchange differences. (**) Impairment loss is recognized during the year. The recoverable amounts of the Group’s CGUs are measured at their value-in-use calculated based on cash flow projections of financial budgets for the next five years approved by management. Cash flows beyond that five year period have been extrapolated by using a non-growth rate for the Group’s CGUs. The pre-tax discount rate applied to the cash flow projections for the Group’s CGUs are 6.06%~15.3%. As a result of the impairment test, goodwill of IWC Beijing recognized the impairment loss on the total amount. On the other hand, the other goodwill is not expected to exceed the recoverable amount. 12. Trade and other payables

Trade and other payables as at December 31, 2016 and 2015 consist of the following (Korean won in thousands):


Trade payables ￦ 868,755,393 ￦ - ￦ 700,199,442 ￦ -Other payables 31,196,659 600,000 23,432,425 1,200,000Present value discount (5,292) (24,023) (528) (65,867) 31,191,367 575,977 23,431,897 1,134,133

Accrued expenses 31,252,549 311,419 15,746,161 25,476 ￦ 931,199,309 ￦ 887,396 ￦ 739,377,500 ￦ 1,159,609

13. Other financial liabilities Other financial liabilities as at December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016 2015 Contracts on currency forwards ￦ 8,779 ￦ 15,234Others 1,070,240 11,269 ￦ 1,079,019 ￦ 26,503

41


14. Other liabilities Other liabilities as at December 31, 2016 and 2015 consist of the following (Korean won in thousands):


Advance received ￦ 24,990,780 ￦ - ￦ 29,254,593 ￦ -Value-added tax withholding 2,069,997 - 3,229,245 -Withholdings 3,458,726 - 5,175,797 -Unearned income 2,621,800 - 1,851,072 -Others 61,453 671,455 74,895 104,955

￦ 33,202,756 ￦ 671,455 ￦ 39,585,602 ￦ 104,955 15. Retirement benefit plan The main actuarial assumptions used by the Company as at December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016 2015 Discount rate 1.40~7.20% 2.08~7.86% Expected rate of salary increase 1.50~10.00% 1.50~10.00% The amounts recognized in the consolidated statements of financial position related to defined benefit plans

as of December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016 2015 Present value of defined benefit obligations ￦ 32,353,065 ￦ 27,373,418

Fair value of plan assets (33,510,480) (28,309,403)Net defined benefit liabilities (assets) ￦ (1,157,415) ￦ (935,985) The changes in the net defined benefit liability (assets) for the year ended December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016

Present value of the defined benefit

obligations Fair value of the

plan assets

Net defined benefit liabilities

Beginning of the year ￦ 27,373,418 ￦ (28,309,403) ￦ (935,985)Current service cost 5,324,057 - 5,324,057Interest expenses (income) 617,557 (636,973) (19,416) 33,315,032 (28,946,376) 4,368,656Remeasurements: Return on plan assets - 61,257 61,257Actuarial loss arising from changes in demographic assumptions 45,981 - 45,981

Actuarial loss arising from changes in financial assumptions 23,855 - 23,855

Actuarial loss arising from experience adjustments 1,818,870 - 1,818,870

1,888,706 61,257 1,949,963Contributions - (7,400,000) (7,400,000)Benefits paid (2,847,385) 2,774,640 (72,745)Effect of exchange rate and others (3,289) - (3,289)End of the year ￦ 32,353,064 ￦ (33,510,479) ￦ (1,157,415)

42


15. Retirement benefit plan (cont’d)

2015

Present value of the defined benefit

obligations Fair value of the

plan assets

Net defined benefit liabilities

Beginning of the year ￦ 23,559,645 ￦ (20,400,794) ￦ 3,158,851Current service cost 4,916,142 - 4,916,142Interest expenses (income) 597,771 (495,705) 102,066 29,073,558 (20,896,499) 8,177,059Remeasurements: Return on plan assets - 13,970 13,970Actuarial loss arising from changes in demographic assumptions 414 - 414

Actuarial loss arising from changes in financial assumptions 578,700 - 578,700

Actuarial loss arising from experience adjustments 408,736 - 408,736

987,850 13,970 1,001,820Contributions - (10,000,000) (10,000,000)Benefits paid (2,670,580) 2,573,126 (97,454)Effect of exchange rate

and others (17,410) - (17,410)End of the year ￦ 27,373,418 ￦ (28,309,403) ￦ (935,985) The fair value of the plan assets as at December 31, 2016 and 2015 consists of the following (Korean won in thousands):

2016 2015 Insurance instruments ￦ 33,510,480 ￦ 28,309,403 The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring as at December 31, 2016 and 2015, while holding all other assumptions constant.

2016 2015 1% increase 1% decrease 1% increase 1% decrease

Discount rate ￦ (1,670,201) ￦ 1,893,018 ￦ (1,407,757) ￦ 1,597,459Expected rate of salary increase 1,857,982 (1,667,629) 1,582,223 (1,417,784)

Since there is correlation among actuarial assumptions, changes of assumptions will not occur in isolation and the above sensitivity analyses will not show the actual change of defined benefit obligations. Also, in the above sensitivity analyses, present value of defined benefit obligations is measured by using the Projected Unit Credit Method which is applied to measure the amount of defined benefit obligations in the consolidated statements of financial position.

43


16. Provisions Provisions as at December 31, 2016 and 2015 consist of the following (Korean won in thousands):


Provision for restoration liabilities ￦ - ￦ 678,272 ￦ - ￦ 653,148Other long-term employee benefits - 2,194,748 - 1,962,980Others 240,069 285,509 1,549,070 280,954

￦ 240,069 ￦ 3,158,529 ￦ 1,549,070 ￦ 2,897,082 The changes in provisions for the year ended December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016

Beginning of the year Charged Utilized Others

End of the year

Provision for restoration liabilities

￦ 653,148 ￦ 31,793 ￦ - ￦ (6,669) ￦ 678,272

Other long-term employee benefits

1,962,980 502,719 (270,951) - 2,194,748

Others 1,830,024 272,584 (1,603,426) 26,396 525,578 ￦ 4,446,152 ￦ 807,096 ￦ (1,874,377) ￦ 19,727 ￦ 3,398,598

2015

Beginning of the year Charged Utilized Others

End of the year

Provision for restoration liabilities

￦ 646,601 ￦ 20,757 ￦ - ￦ (14,210) ￦ 653,148

Other long-term employee benefits

1,632,614 879,447 (549,081) - 1,962,980

Others 3,741,899 1,240,148 (1,264,153) (1,887,870) 1,830,024 ￦ 6,021,114 ￦ 2,140,352 ￦ (1,813,234) ￦ (1,902,080) ￦ 4,446,152 17. Capital stock Common stock as at December 31, 2016 and 2015 consists of the following:

2016 2015 Authorized 50,000,000 shares 50,000,000 sharesIssued 20,000,000 shares 20,000,000 sharesPar value ￦ 500 ￦ 500Capital stock ￦ 10,000,000,000 ￦ 10,000,000,000

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18. Other contributed capital The details of other contributed capital as at December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016 2015 Stock paid-in capital in excess of par value(*) ￦ 132,848,564 ￦ 132,848,564

(*) It is increased by paid-in capital increase of the parent company in the prior year. 19. Components of other capital

The details of components of other capital as at December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016 2015 Gain on valuation of AFS financial assets, net ￦ (7,402) ￦ 43,375Gain on share of the other comprehensive income of equity-accounted investees 205,077 398,385

Loss on foreign operations translation, net (7,290,291) (11,311,565) ￦ (7,092,616) ￦ (10,869,805) Changes in gain on valuation of AFS assets for the years ended December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016 2015 Beginning of the year ￦ 43,375 ￦ 47,539Loss on changes in fair value of AFS financial assets (66,988) (5,494)Tax effect 16,211 1,330End of the year ￦ (7,402) ￦ 43,375 20. Retained earnings Retained earnings as at December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016 2015 Legal reserve (*) ￦ 5,000,000 ￦ 4,500,000Discretionary reserve Reserve for establishment of research center for brand 18,000,000 18,000,000

Reserve for development for overseas markets 21,500,000 21,500,000Unappropriated 474,306,962 428,937,335 ￦ 518,806,962 ￦ 472,937,335 (*) The Commercial Code of the Republic of Korea requires the Company to appropriate as a legal reserve, a minimum of 10% of annual cash dividends declared, until such reserve equals 50% of its capital stock issued.

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20. Retained earnings (cont’d)

The legal reserve may not be utilized for cash dividends but may only be used to offset a deficit, if any, or be transferred to capital stock. Changes in retained earnings for the years ended December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016 2015 Beginning of the year ￦ 472,937,335 ￦ 416,280,070Net income attributable to the owners of the Company

65,348,479 70,019,163

Payment of dividends (18,000,000) (12,600,000)Remeasurements of defined benefit plans

(1,949,963) (1,001,820)

Tax effect 471,111 239,922End of the year ￦ 518,806,962 ￦ 472,937,335 The computation of the proposed dividends of the Company for the years ended December 31, 2016 and 2015 are as follows:

2016 2015 Dividend per share (dividend rate) ￦ 950 (190%) ￦ 900 (180%)Number of shares issued 20,000,000 shares 20,000,000 sharesDividends ￦ 19,000,000,000 ￦ 18,000,000,000 Changes in remeasurements of defined benefit plans for the years ended December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016 2015 Beginning of year ￦ (1,764,661) ￦ (1,002,763)Changes (1,949,963) (1,001,820)Tax effect 471,111 239,922End of year ￦ (3,243,513) ￦ (1,764,661) 21. Sales Sales for the years ended December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016 2015 Rendering of services ￦ 1,037,185,313 ￦ 975,616,649Sales of goods 14,375,449 12,307,597 ￦ 1,051,560,762 ￦ 987,924,246 The sales revenue from the customer who accounts for more than 10% of the Group’s sales revenue are as follows (Korean won in thousands):

2016 2015 Hyundai Motor America ￦ 226,625,780 ￦ 215,859,751Hyundai Motor Company 195,940,637 157,700,412

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22. Selling and administrative expenses Selling and administrative expenses for the years ended December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016 2015 Payroll ￦ 180,121,160 ￦ 142,568,808Post-employment benefits 5,466,767 5,015,791Termination benefits 24,066 -Welfare 18,284,462 15,183,952Entertainment 3,030,443 3,147,924Depreciation 4,798,364 4,626,152Amortization 924,836 968,629Taxes and dues 1,355,350 644,922Advertisements 1,781,090 2,091,601Service charges 13,477,444 14,300,632Employee training cost 1,243,930 1,238,152Market development 2,866,037 3,389,607Travel 5,702,176 4,753,367Communication 1,947,231 1,873,711Supplies 706,836 436,489Publication 1,353,055 1,029,968Repairs 537,748 715,450Vehicles maintenance 1,273,179 1,233,326Rents 18,276,971 14,549,054Office supplies 2,643,362 1,764,339Market research 4,819,940 1,800,629Expenses for (reversal of) allowance for doubtful accounts (122,731) 239,902Others 11,349,900 3,164,053 ￦ 281,861,616 ￦ 224,736,458 23. Finance income and expenses Finance income for the years ended December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016 2015 Interest income ￦ 8,573,811 ￦ 7,730,719Dividend income - 135,003Gain on foreign exchange transactions 6,005,487 6,316,688Gain on foreign currency translation 1,053,594 663,491Gain on valuation of derivatives - 3,273Gain on disposals of other financial assets 70,643 50,829Others 11,342 229 ￦ 15,714,877 ￦ 14,900,232 Finance expenses for the years ended December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016 2015 Interest expenses ￦ 42,805 ￦ 67,959Loss on foreign exchange transactions 6,115,885 6,216,933Loss on foreign currency translation 797,946 656,832Loss on valuation of derivatives 8,779 15,234Others 9,278 6,841 ￦ 6,974,693 ￦ 6,963,799

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24. Other income and expenses Other income for the years ended December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016 2015 Gain on disposals of PP&E ￦ 8,133 ￦ 25,902Gain on disposals of intangible assets 200,000 -Miscellaneous revenues 974,304 2,207,986Others 80,105 160,977 ￦ 1,262,542 ￦ 2,394,865 Other expenses for the years ended December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016 2015 Loss on disposals of PP&E ￦ 39,423 ￦ 4,950Loss on disposals of intangible assets 14,960 32,238Impairment loss on intangible assets 3,777,684 140,000Miscellaneous losses 609,909 161,716Donations 56,108 65,800Others 208,262 208,447 ￦ 4,706,346 ￦ 613,151 25. Expenses by nature Expenses by nature for the years ended December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016 2015 Outsourced production expenses ￦ 628,118,330 ￦ 571,804,053Salaries 203,896,455 162,768,552Depreciation 4,909,084 4,736,872Amortization 924,836 968,629Service charges 25,772,277 71,437,320Others 88,499,822 83,281,067 ￦ 952,120,804 ￦ 894,996,493 26. Income tax expense Income tax expenses for the years ended December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016 2015 Income tax currently payable ￦ 28,803,489 ￦ 26,649,402Adjustments recognized in the current year in relation to the prior years

13,509 995,699

Changes in deferred income tax due to: Temporary differences 2,522,607 1,586,090Items directly charged to equity 487,322 241,252Others (324,699) (55,014)Income tax expense ￦ 31,502,228 ￦ 29,417,429

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26. Income tax expense (cont’d) The reconciliations between income before income tax and income tax expense pursuant to Corporate Income Tax Law of Korea for the years ended December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016 2015 Income before income tax ￦ 109,475,310 ￦ 107,454,210Income tax expense calculated at current applicable tax rates

31,418,011

30,272,537Adjustments: Income not subject to tax (20,356) -Non-deductible expenses 2,238,908 2,955,286Tax credits (3,973,156) (4,937,908)Unrealized deferred tax related to temporary differences 1,069,460 Others 769,361 1,127,514

84,217 (855,108)

Income tax expense ￦ 31,502,228 ￦ 29,417,429

Effective tax rate 28.78% 27.38% The changes in deferred tax assets (liabilities) for the years ended December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016

Beginning of the year Other changes End of the year

Accrued expenses ￦ 630,146 ￦ 33,085 ￦ 663,231Property, plant and equipment 1,418,975 (1,144,611) 274,364Allowance for doubtful accounts 16,907 - 16,907Investment in associates (8,855,494) (3,944,281) (12,799,775)Accrued income (186,246) (547,984) (734,230)Defined benefit liabilities and others 1,540,293 (1,111,370) 428,923Provisions 189,339 501,939 691,278AFS financial assets 1,036 (1,698) (662)Intangible assets and others (5,126,909) 3,692,313 (1,434,596)

￦ (10,371,953) ￦ (2,522,607) ￦ (12,894,560)

2015

Beginning of the year Other changes End of the year

Accrued expenses ￦ 614,614 ￦ 15,532 ￦ 630,146Property, plant and equipment 1,480,242 (61,267) 1,418,975Allowance for doubtful accounts 1,112,374 (1,095,467) 16,907Investment in associates (4,758,929) (4,096,565) (8,855,494)Accrued income (703,216) 516,970 (186,246)Defined benefit liabilities and others 1,243,933 296,360 1,540,293Provisions 749,990 (560,651) 189,339AFS financial assets (38,973) 40,009 1,036Intangible assets and others (8,485,898) 3,358,989 (5,126,909)

￦ (8,785,863) ￦ (1,586,090) ￦ (10,371,953)

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26. Income tax expense (cont’d) Income tax recognized directly in equity for the years ended December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016 2015 Deferred tax arising on income and expenses in equity:

Gain on valuation of AFS financial assets ￦ 16,211 ￦ 1,330Remeasurements of defined benefit plans 471,111 239,922

￦ 487,322 ￦ 241,252 Unused foreign tax credits, which are not recognized in deferred income tax assets, by expiration years, as at December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016 2015 2019 ￦ - ￦ 1,821,7152020 6,698,178 10,172,5902021 8,651,922 - ￦ 15,350,100 ￦ 11,994,305 27. Earnings per common share Basic earnings per common share are computed by dividing profit for the year attributable to owners of the company by the weighted-average number of common shares outstanding during the year. The Group did not compute diluted earnings per common share for the years ended December 31, 2016 and 2015, since there were no dilutive items during the years. Basic earnings per common share for the years ended December 31, 2016 and 2015 are computed as follows:

2016 2015 Profit attributable to the owners of the Parent Company

￦ 65,348,478,590 ￦ 70,019,163,183

Weighted-average number of common shares outstanding

20,000,000 shares 18,936,986 shares

Basic earnings per common share ￦ 3,267 ￦ 3,697 Meanwhile, details of the calculation of weighted average number of common shares outstanding for the previous year are as follows (Share):

Number of shares Weight

Weighted-average number of common shares outstanding

Beginning of the year(*) 18,000,000 365/365 18,000,000

Paid-in capital increase

2,000,000

171/365

936,986

20,000,000 18,936,986 (*) The number of shares were adjusted regarding the fact that stock split carried in the previous year was considered to be performed at the beginning of the year.

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28. Financial instruments Categories of financial assets as at December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016

Financial assets at FVTPL

Loans and receivables

AFS financial assets Book value Fair value

Cash and cash equivalents

￦ - ￦ 231,155,875 ￦ - ￦ 231,155,875 ￦ 231,155,875

Short-term and long- term financial instruments

279,978,933 157,819,697 - 437,798,630 437,798,630

Trade and other receivables

- 847,009,343 - 847,009,343 847,009,343

AFS financial assets - - 2,144,533 2,144,533 2,144,533Other financial assets 182,881 10,225,679 - 10,408,560 10,408,560 ￦ 280,161,814 ￦ 1,246,210,594 ￦ 2,144,533 ￦ 1,528,516,941 ￦ 1,528,516,941

2015

Financial assets at FVTPL


AFS financial assets Book value Fair value

Cash and cash equivalents

￦ - ￦ 241,689,362 ￦ - ￦ 241,689,362 ￦ 241,689,362

Short-term and long- term financial instruments

154,480,490 190,782,573 - 345,263,063 345,263,063

Trade and other receivables

- 700,760,360 - 700,760,360 700,760,360

AFS financial assets - - 2,133,218 2,133,218 2,133,218Other financial assets 186,155 8,035,480 - 8,221,635 8,221,635 ￦ 154,666,645 ￦ 1,141,267,775 ￦ 2,133,218 ￦ 1,298,067,638 ￦ 1,298,067,638

Categories of financial liabilities as at December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016

Financial liabilities at

FVTPL

Financial liabilities carried at

amortized cost Book value Fair value Trade notes and other payable

￦ - ￦ 932,086,705 ￦ 932,086,705 ￦ 932,086,705

Other financial liabilities 8,779 1,070,240 1,079,019 1,079,019 ￦ 8,779 ￦ 933,156,945 ￦ 933,165,724 ￦ 933,165,724

2015

Financial liabilities at

FVTPL

Financial liabilities carried at

amortized cost Book value Fair value Trade notes and other payable

￦ - ￦ 740,537,638 ￦ 740,537,638 ￦ 740,537,638

Other financial liabilities 15,234 11,269 26,503 26,503 ￦ 15,234 ￦ 740,548,907 ￦ 740,564,141 ￦ 740,564,141

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28. Financial instruments (cont’d) Fair value estimation Financial instruments that are measured subsequent to initial recognition at fair value are grouped into Level 1 to Level 3, based on the degree to which the fair value is observable, as described below: Level 1: Fair value measurements are those derived from quoted prices (unadjusted) in active markets for

identical assets or liabilities. Level 2: Fair value measurements are those derived from inputs other than quoted prices included within

Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: Fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Fair value measurements of financial instruments by fair-value hierarchy levels as at December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016 Level 1 Level 2 Level 3 Total

Financial assets at FVTPL ￦ - ￦ 279,978,933 ￦ - ￦ 279,978,933AFS financial assets - 1,990,234 - 1,990,234Derivatives liabilities - 8,779 - 8,779

2015 Level 1 Level 2 Level 3 Total

Financial assets at FVTPL ￦ - ￦ 154,480,490 ￦ - ￦ 154,480,490AFS financial assets - 1,983,218 - 1,983,218Derivatives assets - 3,273 - 3,273Derivatives liabilities - 15,234 - 15,234 The Group recognizes transfers between levels of the fair-value hierarchy at the date of the event or change in circumstances that caused the transfer. Descriptions of the valuation techniques and the inputs used in the fair value measurements categorized within Level 2 of the fair-value hierarchy are as follows: Fair value Valuation technique Input Financial assets at FVTPL:

MMT ￦ 279,978,933 Discounted cash flow method Market interest rate AFS financial assets: Debt securities 1,990,234 Discounted cash flow method Market interest rate Derivatives liabilities: Currency forwards 8,779 Discounted cash flow method Forward exchange rate There are no changes in valuation techniques used in the fair value measurements of financial instruments categorized within Level 2.

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28. Financial instruments (cont’d) The description for financial assets and liabilities which should be measured at fair value but have not been disclosed at fair value due to non-reliable measurement of fair value is as follows (Korean won in thousands):

Description 2016 2015 Financial assets at FVTPL Stock warrants (*) ￦ 182,881 ￦ 182,881

AFS financial assets Unlisted equity securities (*) 154,299

150,000

(*) It is measured at the acquisition cost, because the Group can neither obtain reliable financial information for fair value nor assess the probability for the significant and various estimations about the fair value measurement. 29. Gain (loss) by categories of financial instruments Gain (loss) by categories of financial instruments for the year ended December 31, 2016 and 2015 consist of the following (Korean won in thousands):

2016


Financial assets

at FVTPL AFS financial

assets

Financial liabilities carried at amortized

cost Derivatives

Total Interest income (expenses)

￦ 4,204,927 ￦ 4,035,271 ￦ 328,142 ￦ (37,334) ￦ - ￦ 8,531,006

Gain (loss) on foreign exchange transactions, net

(149,086) - - (2,759) 41,447 (110,398)

Gain on foreign currency translation, net

694,409 - - (438,761) - 255,648

Loss on valuation of derivatives - - - - (8,779) (8,779)

Gain on disposals of other financial assets

70,643 - - - - 70,643

Others 2,064 - - - - 2,064

￦ 4,822,957 ￦ 4,035,271 ￦ 328,142 ￦ (478,854) ￦ 32,668 ￦ 8,740,184

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29. Gain (loss) by categories of financial instruments (cont’d)

2015


Financial assets

at FVTPL AFS financial

assets

Financial liabilities carried at amortized

cost Derivatives

Total Interest income (expenses)

￦ 3,585,786 ￦ 3,820,925 ￦ 324,008 ￦ (67,959) ￦ - ￦ 7,662,760

Gain (loss) on foreign exchange transactions, net

308,181 - - - (208,426) 99,755

Gain on foreign currency translation, net

6,659 - - - - 6,659

Dividend income - - 135,003 - - 135,003Loss on valuation

of derivatives - - - - (11,961) (11,961)

Gain on disposals of other financial assets

50,829 - - - - 50,829

Others (6,612) - - - - (6,612)

￦ 3,944,843 ￦ 3,820,925 ￦ 459,011 ￦ (67,959) ￦ (220,387) ￦ 7,936,433

30. Risk management 30.1 Capital risk management The Group manages its capital to maintain an optimal capital structure for maximizing profit of its shareholders and reducing the cost of capital. Debt to equity ratio calculated as total liabilities divided by total equity is used as an index to manage the Group’s capital. The overall capital risk management policy is consistent with that of the prior period. Debt to equity ratios as at December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016 2015 Total liabilities ￦ 996,817,600 ￦ 806,898,195Total equity 678,252,882 623,576,787Debt-to-equity ratio 146.97% 129.40% 30.2 Financial risk management The Group is exposed to various financial risks such as market risk (foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk related to its financial instruments. The purpose of risk management of the Group is to identify potential risks related to financial performance and reduce, eliminate and evade those risks to an acceptable level of risks to the Group. The overall financial risk management policy is consistent with that of the prior period. 30.2.1 Market risk The Group is exposed to the risk that fair value of future cash flows of financial instrument will fluctuate due to changes in market prices. Market risk consists of foreign exchange risk, interest risk and price risk. 30.2.1.1 Foreign exchange risk management Foreign exchange risk is the risk that fair value of financial instrument will fluctuate due to changes in foreign currency exchange rates. The Group is mainly exposed to exchange rate risk of foreign currencies such as USD because of overseas operating activities.

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30.2.1.1 Foreign exchange risk management (cont’d) The Group monitors and manages the foreign exchange risks regularly. The Group’s sensitivity to a 5% change in exchange rate of the functional currency against each foreign currency on income before income tax for the years ended December 31, 2015 would be as follows (Korean won in thousands):

Foreign exchange rate sensitivity Foreign currency Increase by 5% Decrease by 5%

USD ￦ 879,764 ￦ (879,764)EUR 2,073,880 (2,073,880)GBP 17,963 (17,963)Others 1,313,212 (1,313,212) The sensitivity analysis is applied to the Group’s monetary assets and liabilities in foreign currencies other than functional currency. 30.2.1.2 Interest rate risk management Interest rate risk is the risk that interest income and expenses will fluctuate following to market interest rate. The Group is exposed to interest rate risk arising from financial instruments with floating interest rates. The Group manages interest rate risk to minimize the uncertainty and fluctuation of the profit for the year due to changes in interest rate. The Group’s sensitivity to a 1% change in interest rates for the financial assets and liabilities with floating interest rates on income before income tax for the year ended December 31, 2015, would be as follows (Korean won in thousands):

Interest rate sensitivity Increase by 1% Decrease by 1%

Interest income ￦ 1,586,837 ￦ (1,586,837) 30.2.1.3 Equity price risk Equity price risk is the risk that the fair value or future cash flow of financial instrument will fluctuate due to changes in market price other than foreign currency risk and interest rate risk. However, the Group does not have equity securities traded in active market. 30.2.2 Credit risk The Group is exposed to credit risk when counterparty defaults on its contractual obligation resulting in a financial loss for the Group. The Group operates a policy to transact with counterparties who only meet a certain level of credit rating which was evaluated based on the counterparty’s financial conditions, default history, and other factors. The credit risk in the liquid funds and derivative financial instruments is limited as the Group transacts only with financial institutions with high credit-ratings assigned by international credit-rating agencies. The book value of financial assets in the consolidated financial statements represents the maximum amounts of exposure to credit risk.

55


30.2.2 Credit risk (cont’d) The receivables (billing basis) of customers, which represent more than 5% of total trade and other receivables, are as follows (Korean won in thousands):

2016 2015 Hyundai Motor Company ￦ 222,955,946 ￦ 159,615,931Kia Motors America, Inc. 134,721,922 47,641,768Dongfeng Yueda Kia Motor Co., Ltd 31,248,867 47,812,808Kia Motors Corp. 53,697,679 65,087,888Hyundai Motor America 96,963,265 87,228,521 ￦ 539,587,679 ￦ 407,386,916 30.2.3 Liquidity risk The Group manages liquidity risk by matching the maturity of financial liabilities and financial assets through reviewing and analyzing between actual cash flows and budgetary cash flows based on long-term and short-term cash management plan. The maturity analysis of non-derivative liabilities according to their remaining contract expiration as at December 31, 2015 is as follows (Korean won in thousands):

Nominal cash flows Less than one year One-five years

Total

Non-interest-bearing liabilities ￦ 932,283,620 ￦ 911,419 ￦ 933,195,039 The above maturity analysis have been drawn up based on the undiscounted cash flows of financial liabilities based on earliest date on which the Group can be required to pay.

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31. Related-party transactions For the year ended December 31, 2016, significant transactions arising from operations between the Group and related parties or affiliates of Hyundai Motor company Group (“The Affiliates”) by the Monopoly Regulation and Fair Trade Act of the Republic of Korea (“the Act”) are as follows (Korean won in thousands):

Proceeds Expenses

Sales and others Dividend Purchases and

others Joint venture and associates

ICBAC ￦ 1,645 ￦ - ￦ -Mate Communications Co., Ltd 900 290,000 2,878,775Inspirecorp. Co., Ltd. - - 159,500

Other related parties

Hyundai Motor America 226,625,780 - 151,847KIA Motors America, Inc. 62,182,492 - -Eden Road Holdings - - 6,034,600

Affiliates by the Act

Hyundai Motor Company 195,940,637 - 198,640Kia Motors Corporation 53,772,021 - 236,164Hyundai Motor India Limited 27,913,959 - -Hyundai Auto Canada Corp. 16,914,159 - -Dongfeng Yueda

Kia Motor Co., Ltd 24,273,918 - -Hyundai Motor Deutschland GmbH 19,592,126 - 110,812KIA Motors Europe GmbH.. 26,522,439 - -Hyundai Motor Company

Australia Pty Ltd. 17,821,597 - 20,707KIA Canada, Inc. 14,065,434 - 5,938KIA Motors Deutschland GmbH 17,860,515 - 9,744KIA Motors Company Italy S.r.l 12,214,095 - 9,974Hyundai Card Co., Ltd. 6,599,504 - 1,362,048Hyundai Capital Services, Inc. 721,743 - 442,437Hyundai Autoever Corp. 1,927,290 - 2,378,011Others (*) 115,581,235 - 2,376,994

(*) Others include subsidiaries of the Affiliates by the Act.

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31. Related-party transactions (cont’d) For the year ended December 31, 2015, significant transactions arising from operations between the Group and related parties or the Affiliates by Act, are as follows:

Proceeds Expenses

Sales and others Dividend Purchases and

others Joint venture and associates

ICBAC ￦ 6,303 ￦ 4,137,534 ￦ -Mate Communications Co., Ltd - - 4,217,993Inspirecorp. Co., Ltd. - - 144,000

Other related parties

Hyundai Motor America 215,859,751 - -KIA Motors America, Inc. 44,952,238 - -


Hyundai Motor Company 157,700,412 - 266,210Kia Motors Corporation 48,894,046 - 108,010Hyundai Motor India Limited 25,278,054 - -KIA Motors Europe GmbH 19,601,375 - -KIA Canada, Inc 15,001,180 - -Dongfeng Yueda

Kia Motor Co., Ltd 22,034,109 - -Hyundai Motor

Deutschland GmbH 18,270,512 - 242,656KIA Motors Deutschland GmbH 19,035,509 - 3,370KIA Motor Group China, Ltd. 15,362,434 - -Hyundai Motor Europe GmbH 14,776,758 - -Hyundai Motor Company Australia Pty Ltd. 13,749,761 - 21,394Hyundai Auto Canada Corp. 13,117,543 - -KIA Motors Company Italy S.r.l 10,143,151 - 3,654KIA Motors Australia Pty Ltd. 6,888,922 - 51,908KIA Motors (UK) Ltd. 5,867,375 - 5,598Hyundai Motor France SAS 5,110,981 - 10,955KIA Motors France SAS 4,331,731 - 29,602Hyundai Card Co., Ltd. 9,850,136 - 1,548,640Hyundai Capital Services, Inc. 2,301,629 - 407,202Hyundai Autoever Corp. 202,229 - 1,991,979Others (*) 66,049,034 - 2,699,887


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31. Related-party transactions (cont’d) As at December 31, 2016 and 2015, significant balances related to the transactions between the Group and related parties or the Affiliates by the Act are as follows (Korean won in thousands):

2016

Receivables Payables

Trade receivables

Other receivables and others Trade payables

Otherpayables

and others Joint venture and associates

Beijing Innocean-CBAC Advertising Co., Ltd.

￦ - ￦ 1,649 ￦ - ￦ - Mate Communications

Co., Ltd - - - 1,058,735 Inspirecorp. Co., Ltd. - - - 12,980Other related parties

Hyundai Motor America 96,963,265 - - 2,166,379KIA Motors America, Inc. 134,721,922 - - 1,966,912

Eden Road Holdings - - - 1,611,333Affiliates by the Act

Hyundai Motor Company 222,955,946 1,308,337 60,062 14,225,209

Kia Motors Co., Ltd. 53,697,679 869,223 42,884 1,630,441Dongfeng Yueda Kia Motor Co., Ltd 31,248,867 - - -Hyundai Motor Deutschland GmbH 5,165,804 - - 1,270Hyundai MOBIS Co., Ltd. 21,929,787 228,897 - 55,631

Hyundai Auto Canada Corp. 9,540,055 - - -

KIA Motors Russia LLC 6,300,815 - 252,179 -KIA Motors Company Italy S.r.l 4,892,758 - - -

Hyundai Moto CIS LLC 1,219,210 - - -Hyundai Steel Co., Ltd 7,621,690 897 - 43,144Hyundai Autoever Corp. 968,179 - 227,426 432,707Others (*) ￦ 116,685,497 ￦ 2,924,912 ￦ 266,397 ￦ 611,738


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31. Related-party transactions (cont’d)

2015

Receivables Payables

Trade receivables

Other receivables and others Trade payables

Otherpayables

and others Joint venture and associates

Beijing Innocean-CBAC Advertising Co., Ltd.

￦ - ￦ 4,143,861 ￦ - ￦ - Mate Communications

Co., Ltd - - 63,553 763,568 Inspirecorp. Co., Ltd. - - - 13,200Other related parties

Hyundai Motor America 87,228,521 - - 1,407,088KIA Motors America, Inc. 47,641,768 - - 783,880


Hyundai Motor Company 159,615,931 3,913,115 69,432 16,244,532

Kia Motors Co., Ltd. 65,087,888 1,739,493 40,925 645,442Dongfeng Yueda Kia Motor Co., Ltd 47,812,808 - - 71,112Hyundai MOBIS Co., Ltd. 21,210,404 1,002,413 - 152,260

KIA Motors Company Italy S.r.l 17,462,545 - 4,714 35,288

Hyundai Auto Canada Corp. 14,461,463 - - -

KIA Motors Russia LLC 7,664,847 - - 209,307Hyundai Motor Company Australia Pty Limited 7,610,385 - 1,263 -

Hyundai Motor Group China, Ltd. 7,491,280 14,388 - -KIA Motors Iberia 7,335,997 - - -KIA Canada, Inc. 6,639,566 - - -KIA Motors Australia Pty Ltd. 6,193,628 - 5,218 -

Hyundai Autoever Corp. 410,337 7,738 359,657 465,459Others (*) ￦ 75,381,741 ￦ 4,421,035 ￦ 126,288 ￦ 1,434,137


Compensation for registered directors and unregistered directors of the Group for the years ended December 31, 2016 and 2015 is as follows (Korean won in thousands):

2016 2015 Short-term employee salaries ￦ 3,354,981 ￦ 3,655,533Post-employment benefits 790,008 902,822Other long-term benefits 21,667 7,990 ￦ 4,166,656 ￦ 4,566,345

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32. Cash generated from operations Cash generated from operations for the years ended December 31, 2016 and 2015 are as follows (Korean won in thousands):

2016 2015 Profit for the year ￦ 77,973,083 ￦ 78,036,781Adjustments: Post-employment benefits 5,304,641 5,018,208Depreciation 4,909,084 4,736,872Amortization of intangible assets 924,836 968,629Expenses for allowance for doubtful accounts (122,731) 239,902Loss on valuation of derivatives 8,779 15,234Gain on valuation of derivatives - (3,273)Expenses for provisions for restoration costs - 20,757Income tax expense 31,502,228 29,417,429Loss (gain) on foreign currency translation, net (255,648) (6,659)Loss (gain) on disposals of PP&E, net 31,290 (20,951)Loss on disposals of intangible assets (185,040) 32,238Impairment loss (reversal) on intangible assets 3,777,684 140,000Interest income (expense), net (8,531,006) (7,662,760)Gain on share of earnings of equity-accounted investees, net (4,738,973) (4,808,311)Dividend income - (135,003)Others 589,365 (5,042,168)

33,214,509 22,910,144Changes in operating assets and liabilities: Decrease (increase) in trade receivables (121,929,175) (67,277,440)Decrease (increase) in other receivables (5,638,919) 2,037,967Decrease in other financial assets (293,981) 129,730Decrease (increase) in other assets (1,339,300) 4,286,973Increase in trade payables 163,061,825 35,966,677Increase in other payables (2,366,316) 10,617,420Increase in other liabilities (5,117,646) 15,588,990Decrease in other financial liabilities (15,234) -Payment of severance benefits (72,745) (97,454)

Increase of contributions (7,400,000) (10,000,000)Decrease in provisions (1,874,377) (1,813,234)

17,014,132 (10,560,371)Cash generated from operations ￦ 128,201,724 ￦ 90,386,554

Investing and financing activities of non-cash transactions for the years ended December 31, 2016 and 2015, are as follows (Korean won in thousands):

2016 2015 Payables related to acquisitions of property, plant and equipment ￦ 3,160,771 ￦ -Receivables related to disposals of intangible assets 750,000 -Payables related to business combinations - 1,311,983

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33. Commitments and contingencies Payment guarantees provided by third parties other than related parties as at December 31, 2015 are as

follows (Korean won in thousands):

Financial institutions Provided entity Guaranteed limits

Guaranteed amount

Performance guarantee Kookmin Bank

Seoul Line 9 Operation Co.,

Ltd ￦ 10,000,000 ￦ 30,600 Woori Bank - 5,000,000 - Woori Bank - $ 4,000,000 - ￦ 30,600 The Company has been provided with guarantees amounting to \11,260,008 thousand relating to contract performance by Seoul Guarantee Insurance Company as at December 31, 2016. The Company has entered into an agency agreement with KOBACO, which also serves as a regulatory agency for the domestic media and advertising industry. Under the agreement, the Company should submit all requests for advertisements received from direct advertisers or advertising sponsors to KOBACO, which is authorized to deal with media companies for the airing of such advertisements, and from which the Company receives an agent fee ranging from 9% to 13% of the receipts from advertisers. As at December 31, 2016, the Company maintains the lines for bank overdraft of up to \7,000 million and discount of notes receivable of up to \3,000 million with Kookmin Bank and other financial institutions. The Company does not have discounted the notes receivable as at December 31, 2016. As at December 31, 2016, the Company is involved in lawsuits relating to claim for damages as a Defendant (aggregate claim amount of \456,946 thousand). The Company is currently unable to estimate the outcome or the potential financial impacts of such lawsuits. IWH acquired 51% shares of their subordinate company Canvas Worldwide, LLC by year of Establishment in 2015. And they also signed a share option contract with non-controlling interests shareholders called Eden Road Holdings (ERH) on their 49% shares. According to share option contract, IWH and ERH acquires a call option and a put option, respectively, which can be exercised after 2021 on an exercise price based on financial result. The Group cannot reliably evaluate the fair value of the financial liability of the repayment amount expected at the end of the reporting period because Canvas Worldwide, LLC was newly established at the end of the prior reporting period and the measurement period is long, uncertainty about future financial performance estimates is high.

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34. Segment information The Group has a single segment, advertising agencies, and consists of a single operating segment. Operating performance by region where the Group’s entities are located for the years ended December 31,

2016 and 2015 are as follows (Korean won in thousands):

For the year ended December 31, 2016

Korea Europe America China Others Consolidation adjustments

Total

Total sales ￦ 422,079,578 ￦ 162,452,474 ￦ 415,058,584 ￦ 32,083,105 ￦ 74,150,012 ￦ (54,262,991) ￦ 1,051,560,762Inter-company sales (87,039) (3,516,945) (50,610,278) (23,590) (25,139) 54,262,991 -Net sales 421,992,539 158,935,529 364,448,306 32,059,515 74,124,873 - 1,051,560,762Operating income 35,880,711 12,692,939 35,404,745 5,883,252 8,977,919 600,391 99,439,957


Korea Europe America China Others Consolidation adjustments

Total

Total sales ￦ 421,332,724 ￦ 138,457,568 ￦ 329,325,257 ￦ 39,998,296 ￦ 63,595,598 ￦ (4,785,197) ￦ 987,924,246Inter-company sales (160,799) (3,133,024) (1,366,221) (107,865) (17,288) 4,785,197 -Net sales 421,171,925 135,324,544 327,959,036 39,890,431 63,578,310 - 987,924,246Operating income 41,817,118 10,900,622 24,305,808 7,748,116 8,049,509 106,579 92,927,752

Non-current assests by region where the Group’s entities are located for the years ended December 31, 2016 and 2015 are as follows (Korean won in thousands):


Korea Europe America China Others Consolidation adjustments Total

Non-current assets(*) ￦ 32,069,318 ￦ 2,234,502 ￦ 29,298,998 ￦ 571,803 ￦ 623,735 ￦ 26,562,103 ￦ 91,360,459

(*) Non-current assets consist of PP&E and intangible assets.


Korea Europe America China Others Consolidation adjustments Total

Non-current assets(*) ￦ 31,761,626 ￦ 2,903,780 ￦ 18,720,607 ￦ 320,500 ￦ 791,652 ￦ 29,628,601 ￦ 84,126,766

(*) Non-current assets consist of PP&E and intangible assets.

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35. Business combination For the purpose of enhancing corporate value through project execution capabilities and competitiveness, comprehensive acquire research and consulting division of GASK Co., Ltd. The business combination for the year ended December 31, 2015 is as follows (Korean won in thousands):

Main business activities Acquisition date Transfer consideration GASK Co., Ltd. Research, consulting 2015.06.29 ￦ 2,249,000 The transfer consideration for business combination, fair values of assets acquired and liabilities recognized at the date of acquisition and goodwill arising on acquisition is as follows:

2015 Transfer consideration ￦ 2,249,000Fair value of identifiable assets and liabilities: Intangible assets (44,000)

Goodwill arising on acquisition ￦ 2,205,000 Net cash outflow related to the business combination is as follows (Korean won in thousands):

2015 Cash outflows for transfer price ￦ 1,228,498Less: accounts payable (291,481)The amount paid in cash 937,017 ￦ 937,017

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innocean worldwide inc. and its subsidiaries · 2017. 4. 27. · advertising agency, and are...

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