Innocean Worldwide Inc. and its subsidiaries

Transcription

1 Consolidated financial statements for the years ended with the independent auditors report

2 Table of contents Independent auditors report Consolidated financial statements Page 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 6

3 한영회계법인서울특별시영등포구여의공원로 111, 태영빌딩 3-8F Tel: Fax: ey.com/kr Ernst & Young Han Young Taeyoung Building, 111, Yeouigongwon-ro, Yeongdeungpo-gu, Seoul Korea Tel: Fax: ey.com/kr 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, 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.

4 Consolidated financial statements for the years ended 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.

5 Consolidated statements of financial position as at (Korean won) Notes Assets Current assets Cash and cash equivalents 28 \ 231,155,874,852 \ 241,689,362,048 Short-term financial instruments 4,28 437,454,119, ,925,909,115 Trade receivables and other receivables 5,28,30,31 847,009,342, ,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, ,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, ,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, ,811,861,768 Total assets \ 1,675,070,481,921 \ 1,430,474,982,531 (Continued) 1

6 Consolidated statements of financial position as at (cont'd) (Korean won) Notes Liabilities Current 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 ,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, ,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 ,454, ,954,679 Total non-current liabilities 21,505,377,794 17,749,859,146 Total liabilities \ 996,817,600,352 \ 806,898,195,498 Equity Capital stock 17 10,000,000,000 10,000,000,000 Other contributed capital ,848,563, ,848,563,863 Components of other capital 19 (7,092,615,880) (10,869,805,177) Retained earnings ,806,961, ,937,334,756 Equity attributable to the owners of 654,562,909, ,916,093,442 the Company Non-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. 2

7 Consolidated statements of comprehensive income for the years ended (Korean won) Notes Sales 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, ,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 and associates, 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, ,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) Items that may be reclassified subsequently 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 Earnings per share attributable to the owners of the Company: Basic and diluted earnings per common share 27 3,267 3,697 The accompanying notes are an integral part of the financial statements. 3

8 Consolidated statements of changes in equity for the years ended (Korean won) Total equity attributable Components to the owners of Non-controlling Capital stock Other contributed capital of other capital Retained earnings the Company interests Total equity 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 Payment of cash dividends (12,600,000,000) (12,600,000,000) (7,500,515,380) (20,100,515,380) Profit for the year ,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) Loss on foreign operations translation, net - - (914,485,694) - (914,485,694) 789,182,863 (125,302,831) Changes in valuation of equity-accounted investees, net ,641,940-33,641,940-33,641,940 Purchases of subsidiaries stock ,310,345,600 5,310,345,600 Paid-in capital increase 1,000,000, ,848,563, ,848,563, ,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 Payment of cash dividends (18,000,000,000) (18,000,000,000) (8,647,837,181) (26,647,837,181) Profit for the year ,348,478,590 65,348,478,590 12,624,604,029 77,973,082,619 Loss 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) Gain on foreign operations translation, net - - 4,021,273,878-4,021,273,878 1,052,511,619 5,073,785,497 Changes in valuation of equity-accounted 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. 4

9 Consolidated statements of cash flows for the years ended (Korean won) Notes Cash 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, ,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, ,560,002 Disposal (acquisitions) of AFS financial securities (5,146,146) 350,000,000 Proceeds from disposals of property, plant and equipment 20,145,735 69,397,466 Proceeds from disposals of intangible assets 930,000, ,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, ,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 The accompanying notes are an integral part of the financial statements. 5

10 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, 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, NHPEA IV Highlight Holdings AB 3,600, Hyundai Motor Chung Mong-Koo Foundation 1,800, Eui-Sun Chung 400, Others 8,601, ,000, Subsidiaries The Company s consolidated subsidiaries as at are as follows: Nature of the business Location Closing date Ownership percentage Subsidiaries Innocean Worldwide Communication Private Ltd. (IWI) Ad-agency India Innocean Worldwide UK Ltd. (IWUK) Ad-agency UK Innocean Worldwide Europe GmbH (IWE) Ad-agency Germany Innocean Worldwide Italy Srl (IWIt) Ad-agency Italy Innocean Worldwide China Shanghai (IWC Shanghai) Ad-agency China Innocean Worldwide China Beijing (IWC Beijing) Ad-agency China Innocean Worldwide Holdings, Inc.(IWH) Holdings US Innocean Worldwide Americas, LLC (IWA) Ad-agency US Innocean Worldwide Australia Pty Ltd.(IWAu) Ad-agency Australia Innocean Worldwide Rus LLC. (IWR) Ad-agency Russia Innocean Worldwide Canada Inc. (IWC) Ad-agency Canada Innocean Worldwide Spain S.L. (IWS) Ad-agency Spain Innocean Worldwide France (IWF) Ad-agency France Innocean Worldwide Turkey (IWTr) Ad-agency Turkey Innocean Worldwide Brazil (IWB) Ad-agency Brazil Innocean Worldwide Mexico (IWM) Ad-agency Mexico Innocean Worldwide Middle East & Africa FZ-LLC (IWMENA) Ad-agency United Arab Emirates Canvas Worldwide, LLC (CANVAS WW) Media agency US In addition, four Money Market Trusts, over which the Company has the control, are included as consolidated subsidiaries. 6

11 1. General (cont d) Condensed financial positions and results of operations of the Company s consolidated subsidiaries as of and for the years ended are as follows (Korean won in thousands): 2016 Name of subsidiaries Assets Liabilities Sales Profit for the year IWI 15,961,553 6,237,991 28,762,290 2,256,300 IWUK 15,831,246 12,671,766 15,550,867 1,200,956 IWE 52,599,366 39,706, ,207,832 5,132,541 IWIt 21,853,869 18,391,458 14,847,839 1,148,584 IWC Shanghai 70,765,279 39,191,500 29,433,216 5,110,217 IWC Beijing 1,641, ,620 2,649,889 (758,547) IWH (*) 38,741,902 1,390,913-7,536,020 IWA 419,215, ,201, ,974,986 24,840,612 IWAu 28,379,646 22,589,216 27,445,444 1,824,712 IWR 22,984,334 7,817,874 10,232,591 2,158,793 IWC 26,950,477 20,628,562 32,334,710 2,672,150 IWS 17,372,468 14,972,065 11,613,327 1,153,239 IWF 4,520,840 2,848,340 10,232, ,687 IWTr 3,263,972 2,554,777 2,990, ,300 IWB 2,995, ,055 4,281,585 1,221,329 IWM 996, ,811 9,622, IWMENA 3,351,032 1,781,947 4,719, ,617 CANVAS WW 391,181, ,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. 7

12 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 1,817,862 IWUK 12,983,602 9,738,015 13,770,817 1,359,134 IWE 38,850,079 27,105,268 93,549,767 4,662,291 IWIt 23,922,503 20,482,429 11,581, ,502 IWC Shanghai 83,951,040 56,655,770 32,131,601 6,066,054 IWC Beijing 7,502,964 5,741,736 7,866,695 51,037 IWH(*) 35,417, ,079-5,370,323 IWA 262,617, ,748, ,298,516 20,044,044 IWAu 29,277,192 23,283,077 21,203,477 1,620,367 IWR 17,985,625 7,855,732 8,045,361 2,407,700 IWC 28,402,872 23,321,709 28,233,263 2,186,931 IWS 17,720,968 16,446,829 10,606, ,151 IWF 3,354,751 2,106,881 8,948, ,475 IWTr 4,328,036 3,725,975 4,252, ,476 IWB 2,392, ,481 4,172, ,751 IWM 1,300,886 1,009,844 8,620, ,848 IWMENA 3,743,911 2,996,417 5,084, ,397 CANVAS WW 11,251, (*) 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 45,291,324 Cash 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 8,484,338 Profit attributable to non-controlling interests 9,936,245 2,688,359 8

13 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 Basis of consolidation The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at December 31, 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

14 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 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. 10

15 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 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. 11

16 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 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 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 Royalties The Group recognizes revenue from royalties on an accrual basis in accordance with the substance of the relevant agreement 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 Dividends Revenue is recognized when the Group s right to receive the payment is established, which is generally when shareholders approve the dividend 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 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. 12

17 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 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 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 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. 13

18 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 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 heldto-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. 14

19 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 passthrough 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 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). 15

20 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 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. 16

21 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 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 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 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. 17