Financial Statements
Index Page(s) Independent Auditor s Report.... 1 ~ 2 Financial Statements Statements of Financial Position.. 3 Statements of Profit or Loss.... 4 Statements of Changes in Equity... 5 Statements of Cash Flows... 6 ~ 7... 8 ~ 23 Report on Review of Internal Accounting Control System... 24 Report on the Operations of the Internal Accounting Control System... 25
Independent Auditor s Report (English Translation of a Report Originally Issued in Korean) To the Shareholders and Board of Directors of De Lage Landen Co., Ltd. We have audited the accompanying financial statements of De Lage Landen Co., Ltd. (the Company ), which comprise the statements of financial position as at, and the statements of profit or loss, statements of changes in equity and statements of cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with Accounting Standards for Non-Public Entities in the Republic of Korea, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with Korean Standards on Auditing. Those standards require that we comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company s preparation and fair presentation of the 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 Company s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at, and its financial performance and its cash flows for the year then ended in accordance with Accounting Standards for Non-Public Entities in the Republic of Korea. Seoul, Korea March 30, 2018 This report is effective as at March 30, 2018, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any. 2
Statements of Financial Position Notes 2017 2016 Assets Cash and due from banks Cash and cash equivalents 1,354,255,473 1,440,656,417 Loans Loans receivables 3 109,831,324,466 96,328,097,852 Allowance for doubtful accounts (1,129,581,978) (686,551,890) Lease assets Finance lease receivables 4 122,583,618,668 102,912,419,308 Allowance for doubtful accounts (956,172,031) (948,684,629) Inventory 1,345,595,523 - Property and equipment 6 Leasehold improvement - 324,609,296 Accumulated depreciation - (223,852,196) Office equipment 198,944,043 198,944,043 Accumulated depreciation (173,118,938) (143,497,553) Operating lease asset 5 1,630,334,657 1,630,334,657 Accumulated depreciation (659,880,011) (263,904,760) Other assets Accrued income 1,612,712 - Other receivables 104,772,571 505,793,176 Prepaid expenses 128,074,600 10,119,979 Advance payments 68,910,000 - Deposits 1,166,375,069 260,739,520 Intangible assets 591,579 1,137,679 Derivative financial assets 18 51,085,244 6,307,411,878 Deferred tax assets 8 252,199,163 198,019,074 Income tax refund receivables - 6,316,600 Total assets 235,798,940,810 207,858,108,451 Liabilities Borrowings Borrowings in Korean won 7, 17, 19-3,500,000,000 Borrowings in foreign currency 7, 17, 19 141,552,543,023 125,852,549,496 Other liabilities Lease deposits 18,644,088,307 13,890,952,082 Guarantee deposits received 1,120,009,662 - Accrued expenses 1,616,312,490 2,176,982,589 Other payables 506,657,514 204,734,756 Advance receipts 1,936,419 77,437,066 Withholdings 49,408,610 46,887,840 Value added tax withheld 72,596,826 515,392 Derivative financial liabilities 18 8,900,593,528 191,702,627 Income taxes payable 8 246,586,222 - Total liabilities 172,710,732,601 145,941,761,848 Equity Share capital Ordinary shares 1, 10 24,407,870,000 24,407,870,000 Share premium Paid-in capital in excess of par value 32,957,611,585 32,957,611,585 Retained earnings Unappropiated retained earnings 11 5,722,726,624 4,550,865,018 Total equity 63,088,208,209 61,916,346,603 Total liabilities and equity 235,798,940,810 207,858,108,451 The above statements of financial position should be read in conjunction with the accompanying notes. 2
Statements of Profit or Loss Years Ended Notes 2017 2016 Operating income Interest income Loans 4,498,831,350 3,059,964,104 Finance lease 4,913,330,907 5,139,572,551 Factoring 1,242,393,682 1,487,994,682 Due from banks 27,023,234 26,330,264 Operating Lease income 437,002,286 254,908,157 Gain on foreign currency transactions/translation Gain on foreign currency transactions 3,759,307,535 1,153,184,464 Gain on foreign currency translation 12,795,740,204 503,233,556 Other operating income Lease cancellation 148,377,518 153,091,625 Other lease 83,874,860 106,232,116 Reversal of allowance for bad debts - 49,002,562 Gain on valuation of derivatives 18-3,621,676,245 Gain on derivative transactions 88,799,105 280,738,843 27,994,680,681 15,835,929,169 Operating expenses Interest expenses 2,858,643,307 1,858,403,799 Bad debt expense 967,152,914 - Loss on foreign currency transactions/translation Loss on foreign currency transactions 351,655,710 841,702,102 Loss on foreign currency translation 577,754,040 4,081,503,950 Selling and administrative expenses 13 7,013,465,707 7,136,428,852 Other operating expenses Loss on valuation of derivatives 18 11,588,112,227 191,702,627 Loss on derivative transactions 3,200,873,715 1,134,336,776 26,557,657,620 15,244,078,106 Operating profit 1,437,023,061 591,851,063 Non-operating income Miscellaneous revenues 4,205,599 7,780,320 Non-operating expenses Loss on disposal of property and equipment 46,500,495 - Donations 1,000,000 1,000,000 Profit before income tax 1,393,728,165 598,631,383 Income tax expense 8 221,866,559 188,596,553 Profit for the period 1,171,861,606 410,034,830 Earnings per share Basic earnings per share 15 240 84 The above statements of profit or loss should be read in conjunction with the accompanying notes. 2
Statements of Changes in Equity Years Ended Notes Share Share Retained capital premium earnings Total Balance at January 1, 2016 24,407,870,000 32,957,611,585 4,140,830,188 61,506,311,773 Profit for the year - - 410,034,830 410,034,830 Balance at December 31, 2016 24,407,870,000 32,957,611,585 4,550,865,018 61,916,346,603 Balance at January 1, 2017 24,407,870,000 32,957,611,585 4,550,865,018 61,916,346,603 Profit for the year - - 1,171,861,606 1,171,861,606 Balance at December 31, 2017 24,407,870,000 32,957,611,585 5,722,726,624 63,088,208,209 The above statements of changes in equity should be read in conjunction with the accompanying notes. 2
Statements of Cash Flows Years Ended Notes 2017 2016 Cash flows from operating activities Profit for the year 1,171,861,606 410,034,830 Adjustments to reconcile profit for the year to net cash provided by operating activities Depreciation 479,853,241 354,644,070 Bad debts expense 997,901,650 - Loss on foreign currency translation 577,754,040 4,081,503,950 Loss on valuation of derivatives 11,588,112,227 42,812,256 Loss on disposal of property and equipment 46,500,495 - Amortization of intangible assets 546,100 578,438 Gain on foreign currency translation (12,795,740,204) (503,233,556) Gain on valuation of derivatives - (3,472,785,874) Reversal of bad debt expense (30,748,735) (49,002,562) 864,178,814 454,516,722 Changes in operating assets and liabilities Increase in loans (19,917,518,280) (10,778,984,978) Decrease (increase) in factoring receivables 6,210,442,928 (6,433,204,631) Decrease (increase) in finance lease receivables (20,491,521,627) 21,209,760,671 Increase in accrued income (1,612,712) - Decrease in other receivables 401,020,605 5,736,622 Decrease (increase) in prepaid expenses (117,954,621) 880,021 Decrease (increase) in income tax refund receivables 6,316,600 (165,433) Increase in inventory (1,345,595,523) - Increase in advance payments (68,910,000) - Increase in deposits (871,222,549) - Decrease (increase) in deferred tax assets (54,180,089) 141,465,976 Increase in withholdings 2,520,770 (627,948) Increase (decrease) in other payables 304,841,768 (598,195,901) Increase (decrease) in income taxes payable 246,586,222 - Increase (decrease) in accrued expenses (560,670,099) (57,898,045) Increase in guarantee deposits received 1,120,009,662 - Increase (decrease) in advance receipts (75,500,647) 69,615,606 Increase in value added tax withheld 72,081,434 515,392 Increase (decrease) in lease deposits 4,861,302,438 (4,012,746,228) (30,279,563,720) (453,848,876) Net cash inflow (outflow) from operating activities (28,243,523,300) 410,702,676 2
Statements of Cash Flows Years Ended Notes 2017 2016 Cash flows from investing activities Decrease in derivative financial assets 3,385,287,179 2,803,537,542 Payments for operating lease asset - (1,630,334,657) Payments for office equipment - (11,572,880) Increase in deposits (34,413,000) (14,436,520) Decrease in derivative financial liabilities (8,181,871) (58,895,983) Net cash inflow (outflow) from investing activities 3,342,692,308 1,088,297,502 Cash flows from financing activities Issurance of borrowings in Korean won - 10,343,000,000 Issurance of borrowings in Korean won 98,646,543,323 50,724,997,101 Payment of borrowings in Korean won (3,500,000,000) (15,843,000,000) Payment of borrowings in foreign currency (70,261,894,815) (50,769,815,260) Net cash inflow (outflow) from financing activities 24,884,648,508 (5,544,818,159) Effects of exchange rate changes on cash and cash equivalents (70,218,460) (8,677,644) Net increase (decrease) in cash and cash equivalents (86,400,944) (4,054,495,625) Cash and cash equivalents at the beginning of the year 1,440,656,417 5,495,152,042 Cash and cash equivalents at the end of the year 1,354,255,473 1,440,656,417 The above statement of cash flows should be read in conjunction with the accompanying notes. 2
1. General information De Lage Landen Co., Ltd. (the Company ) was incorporated on September 23, 2004, registered as a global provider of leasing in Seoul. The initial share capital amounted to 50,000 thousand and increased to 24,407,870 thousand through several times of share issuance. On April 2006, the Company became more specialized in asset-based financing solutions, including lease venture and installment financing, and registerd on Financial Supervisory Service. The Company was qualified for the institution with foreign exchange from the Ministry of Strategy and Finance in November 2006. De Lage Landen International B.V owns 100% of shares of the Company, and De Lage Landen International B.V. is a wholly owned subsidiary of Rabobank Nederland. 2. Significant Accounting Policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. 2.1 Basis of preparation The Company maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul). The financial statements of the Company for the annual period beginning on January 1, 2011, have been prepared in accordance with Korean Accounting Standards for Non-Public Entities (KAS-NPEs), which apply to those companies which are subject to the Act on External Audit of Stock Companies but do not prepare their financial statements in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS). Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. The accompanying financial statements have been condensed, restructured and translated into English from the Korean language financial statements. Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Company's financial position, financial performance or cash flows, is not presented in the accompanying financial statements. 2.2 Changes in Accounting Policy and Disclosures (a) New and amended standards adopted by the Company The Company has applied the following standards and amendments for the first time for their annual reporting period commencing January 1, 2017. - KAS-NPEs No. 22 Income Tax Accounting In accordance with the amendment to KAS-NPEs No. 22 Income Tax Accounting, when different tax rates apply to different levels of taxable income, deferred tax assets and liabilities are measured using the average rates that are expected to apply to the taxable profit of the periods in which the temporary differences are expected to reverse. The adoption of the amendment dose not have a significant impact on the financial statements. - KAS-NPEs No. 25 Related Party KAS-NPEs No. 25 Related Party revised the definition of a related party, and accordingly the scope of related parties has been changed. The Compnay dose not expect the amendments to have a significant impact on the financial statements. 8
2.3 Foreign Currency Translation (a) Functional and presentation currency Items included in the Company s financial statements are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The financial statements are presented in Korean won, which is the Company s functional and presentation currency. (b) Foreign currency transactions and translations Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in profit or loss. They are recognized as other comprehensive income equity if they relate to qualifying cash flow hedges and available-for-sale debt securities denominated foreign currencies. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equities classified as available-for-sale financial assets are recognized in other comprehensive income. 2.4 Cash and Cash Equivalents Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term and highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash without significant transaction costs which are subject to an insignificant risk of changes in value. 2.5 Finance Leases The Company accounts for lease transactions as finance lease for leases that transfer substantially all of the risks and benefits of ownership of the lease asset to the lessee. The Company recognizes the amount equivalent to the net investment in the lease asset as finance lease receivable. The lease payments received are allocated between collection of finance lease receivable and interest income. Interest income is calculated for net finance lease receivable based on effective interest rate. 2.6 Operating Lease The Company accounts for operating leases as leases that do not transfer substantially all of the risks and benefits of ownership of the lease asset to the lessee. The lease assets are recognized as tangible or intangible assets depending on the nature of the lease assets. The annual minimum lease payments received, less guaranteed residual value, are recognized as revenue over the lease term. Initial direct costs incurred by lessor in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income. The depreciation policy for depreciable leased assets is consistent with the lessor s normal depreciation policy for similar assets (Note 5). 9
2.7 Allowance for Doubtful Accounts The Company recognizes allowance for doubtful accounts for uncollectible trade receivables based on a reasonable and objective standard. When an allowance for uncollectible trade receivables is established or increased based on revised estimates, bad debt expense is charged (debited). Bad debts expense for trade receivables from commercial transactions is accounted for as selling and administrative expenses, while bad debts expense from other receivables is accounted for as nonoperating expense. Uncollectible receivables are offset against allowance for doubtful accounts and in case of insufficient amount of allowance, bad debts expense is recognized. 2.8 Derivatives All derivative instruments are accounted for at their fair value according to the rights and obligations associated with the related derivative contracts. Changes in fair value of derivative instruments are recognized either under the statement of profit or loss or equity, depending on whether the derivative instruments qualify as a cash flow hedge. For hedging purpose, changes in the fair value of derivatives that hedge a particular risk associated with the fair value of recognized assets or liabilities or a firm commitment are recognized in profit or loss, and changes in the fair value of derivatives that hedge cash flow risk on forecast transaction are recognized in other comprehensive income. 2.9 Property and Equipment Property and equipment are stated at cost, which includes acquisition cost, production cost and other costs required to prepare the asset for its intended use. Property and equipment are stated at acquisition cost, less accumulated depreciation and impairment. Depreciation is calculated over estimated useful lives and depreciation method as follows: Estimated useful life Depreciation method Leasehold improvements 5 years Straight-line method Office equipment 4 Operating lease asset 3.5 Expenditures incurred after the acquisition or completion of assets are capitalized only when it is probable that future economic benefits associated with the item will flow to the Company, which includes any increase in productivity, extension of the useful life of the related assets, significant reduction of cost or enhancement of the value of the related assets over their recently appraised value and the fair value for the related cost can be reliably measured. All other routine maintenance and repairs are charged to expense as incurred. 2.10 Intangible Assets Intangible assets are stated at cost, which includes acquisition cost, production cost and other costs required to prepare the asset for its intended use. Intangible assets are stated at cost less accumulated amortization and impairment. Amortization is calculated over estimated useful lives and depreciation method as follows: Estimated useful life Depreciation method Computer software 4 years Straight-line method 10
2.11 Provisions and Contingent Liabilities Provisions are recognized when it is probable that an outflow of resources will occur due to a present obligation resulting from a past event or transaction, and the amount can be reliably estimated. However, when such outflow is dependent upon a future event, is not certain to occur, or cannot be reliably estimated, a disclosure regarding the contingent liability is made in the notes to the financial statements. Provisions are measured at the present value of the expenditures expected to be settled using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. The discount rate used is the original discount rate assuming that the discount rate does not change. 2.12 Income Tax and Deferred Income Tax Income tax expense includes the current income tax under the relevant income tax law and the changes in deferred income tax assets or liabilities. Deferred income tax assets and liabilities represent temporary differences between financial reporting and the tax bases of assets and liabilities. Deferred income tax assets are recognized for temporary differences which will decrease future taxable income or operating loss to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilized. Deferred income tax effects applicable to items in the equity are directly reflected in the equity. 2.13 Employee Benefits (a) Provision for severance benefits The Company has a defined contribution plan with the related contribution to the pension plan recorded as severance benefit expense. (b) Annual paid leave obligations The Company recognizes expenses and liabilities related to annual paid leave during an accounting period when an employee has rendered service that gives rise to employee s entitlement to future annual paid leave. The Company recognizes expenses and liabilities for the entire annual paid leave resulting from the rendered service as the Company compensates for unused annual leave. 2.14 Revenue Recognition (a) Interest revenues on loans The Company recognizes the interest revenues on loans on an accrual basis. However, regarding loans of which the principal or interest is overdue as at year end, interest revenues are recognized on a cash basis without recognizing the unearned interest income. (b) Revenues on finance lease The Company recognizes interest revenues on finance lease according to the effective annual rate method over the lease period. The unearned interest is the the difference between the finance lease receivable and total minimum lease payment. (c) Revenues on operating lease The annual minimum lease payments received, less guaranteed residual value, are recognized in equivalent amounts as revenue throughout the lease term. 11
2.15 Measurement of Financial Assets and Financial Liabilities (a) Initial measurement Financial assets and financial liabilities are measured at the fair value at the initial recognition. Generally, the transaction price (that is, the fair value of the consideration paid for financial assets and received for financial liabilities) is treated as fair value. In addition, if there is any significant difference between the fair value and the nominal amount of receivable and payable from long-term lending and borrowing transactions or sales transactions with long-term deferred payment conditions, total amount of receivable and payable is carried at fair value. If the consideration paid (or received) includes any amount other than the fair value, the fair value of the financial instrument is carried at the market price. When market price is not available, the fair value is estimated using valuation techniques (including present value based techniques). However, although the consideration consists of the amount other than the fair value, the whole amount is initially recognized if a benefit in return from using the funds is imposed or there is a certain relationship between raising and using the funds. Also for lease deposits, the whole transaction price is recognized at the initial recognition. Trading securities and derivatives (except for derivatives designated as hedging instruments in cash flow hedges) are subsequently measured at fair value after initial recognition, and changes in fair value are recognized in profit and loss. In case of other financial assets and liabilities, any transaction costs related to acquisition of financial assets or issuance of financial liabilities are added to or deducted from initially recognized fair value. When measuring the present value of financial instruments, the Company uses the internal interest rate of transactions that occurred in the current period. If the internal interest rate is not available or the difference from the market interest rate is significant, the market interest rate is applied. If the market interest rate cannot be calculated, then the weighted average interest rate which is calculated by reasonable and objective standards is used. If reasonable and objective standards are unavailable, the Company applies the financing costs which are reasonably estimated using the distribution rate of corporate bonds, reflecting the Company s credit rating. (b) Subsequent measurement Financial assets and financial liabilities, other than derivatives (Note 2.7), are measured at amortized cost using the effective interest method. 2.16 Approval of Financial Statements The December 31, 2017 financial statements of the Company were approved by the Board of Directors on February 14, 2018. 12
3. Loans Details of loans as at are as follows: General loans \ 79,557,552,021 \ (977,909,636) \ 78,579,642,385 Factoring receivables 30,273,772,445 (151,672,342) 30,122,100,103 Loans December 31, 2017 Allowance for doubtful account Loans (net) \ 109,831,324,466 \ (1,129,581,978) \ 108,701,742,488 Loans December 31, 2016 Allowance for doubtful account Loans (net) General loans \ 59,843,882,479 \ (504,130,813) \ 59,339,751,666 Factoring receivables 36,484,215,373 (182,421,077) 36,301,794,296 \ 96,328,097,852 \ (686,551,890) \ 95,641,545,962 4. Finance Leases Gross and net investment in the leases as at are as follows: December 31, 2017 Minimum lease Total lease Net lease Within one year \ 52,456,195,795 \ 52,456,195,795 \ 48,407,545,692 Later than one year but no later than five 77,738,160,017 77,738,160,017 74,176,072,976 \ 130,194,355,812 \ 130,194,355,812 \ 122,583,618,668 December 31, 2016 Minimum lease Total lease Net lease Within one year \ 50,536,825,224 \ 50,536,825,224 \ 47,513,336,384 Later than one year but no later than five 58,759,991,238 58,759,991,238 55,399,082,924 \ 109,296,816,462 \ 109,296,816,462 \ 102,912,419,308 Guaranteed residual value on finance lease receivables as at years ended in December 31, 2017 and 2016 does not exist, and unearned interest on finance lease receivables are 7,610,737,144 (2016: 6,384,397,154). 13
Balances of the doubtful receivables and related allowances as at are as follows: 2017 2016 Doubtful minimum lease receivables \ 497,584,942 \ 704,094,551 Allowance for doubtful accounts (242,781,229) (433,498,583) Doubtful minimum lease receivables (net) \ 254,803,713 \ 270,595,968 5. Inventory 2017 2016 Lease preliminary assets 1,345,595,523-6. Operating Lease Asset December 31, 2017 Machinery Aqcuisition cost \ 1,630,334,657 Accumulated depreciation (*) (659,880,011) Ending balance \ 970,454,646 (*) Operating lease assets are depreciated on a straight-line basis over the 42 month contract period. Future minimum lease payments as at December 31, 2017 are as follows December 31, 2017 Within one year \ 437,120,400 Later than one year but no later than five 645,193,700 \ 1,082,314,100 14
7. Property and Equipment Changes in property and equipment for the years ended are as follows: 2017 Leasehold improvement Office equipment Operating lease asset Total Beginning balance 100,757,100 55,446,490 1,366,429,897 1,522,633,487 Disposal (44,862,905) (1,637,590) - (46,500,495) Depreciation (55,894,195) (27,983,795) (395,975,251) (479,853,241) Ending balance - 25,825,105 970,454,646 996,279,751 Acquisition cost - 198,944,043 1,630,334,657 1,829,278,700 Accumulated depreciation - (173,118,938) (659,880,011) (832,998,949) 2016 Leasehold improvement Office equipment Operating lease asset Total Beginning balance 160,412,821 74,957,199-235,370,020 Acquisition - 11,572,880 1,630,334,657 1,641,907,537 Depreciation (59,655,721) (31,083,589) (263,904,760) (354,644,070) Ending balance 100,757,100 55,446,490 1,366,429,897 1,522,633,487 Acquisition cost 324,609,296 198,944,043 1,630,334,657 2,153,887,996 Accumulated depreciation (223,852,196) (143,497,553) (263,904,760) (631,254,509) Leasehold improvement and Office equipment are insured against fire and other casualty losses for up to 404,990,000 as at December 31, 2017 (2016: 404,990,000). 8. Borrowings Borrowings as at are as follows: (in Korean won and in US dollar ) Company Interest rate as at December 31, 2017 2017 2016 Payment schedule Borrowings in Korean won Borrowings in foreign currency HSBC Seoul Branch DLL Ireland DAC LIBOR - +0.24%~1.41% - 3,500,000,000 141,552,543,023 (USD 132,119,230) 125,852,549,496 (USD 104,139,470) Lump sum payment after one year Redemption by installment after one year 15
Liquidity risk The Company monitors rolling forecasts of the Company s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities (Note 19) at all times so that the Company does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. The Company s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans. The Company s treasury department invests surplus cash in interest-bearing current accounts, time deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts. At the end of the reporting period, the Company held 1,354,255,473 (2016: 1,440,656,417) in short-term deposits that are expected to readily generate cash inflows for managing liquidity risk. Details of the Company s maturity analysis as at are as follows: 2017 Less than 3 months Between 3 months and 1 year Between 1 and 2 years Between 2 and 5 years Total Borrowings in foreign currency \ 8,689,774,206 \ 47,254,074,629 \ 39,831,265,444 \ 51,978,300,668 \ 147,753,414,947 Derivative Liabilty 463,656,869 2,464,625,847 2,366,568,100 3,605,742,712 8,900,593,528 Less than 3 months Between 3 months and 1 year Between 1 and 2 years Between 2 and 5 years Total Borrowings in Korean won \ - \ 3,500,000,000 \ - \ - \ 3,500,000,000 Borrowings in foreign currency 25,291,367,150 33,918,651,665 31,143,019,621 35,499,511,060 125,852,549,496 Derivative Liabilty - 8,181,871 12,489,067 171,031,689 191,702,627 2016 9. Deferred Income Taxes Income tax expense for the years ended consists of: 2017 2016 Current income taxes 270,526,592 47,148,760 Additional payment of current income taxes 5,520,056 (18,183) Deferred income tax due to temporary differences (54,180,089) 141,465,976 Income tax expense 221,866,559 188,596,553 16
Reconciliation between profit before income tax and income tax expense for the years ended is as follows: 2017 2016 Profit before income tax 1,393,728,165 598,631,383 Income tax based on statutory tax rate 284,620,196 109,698,904 Add (deduct): Non-taxable income 9,134,135 12,607,168 Additional payment of current income taxes 5,520,056 (18,183) Other (difference of tax rate etc.) (77,407,828) 66,308,664 Income tax expense 221,866,559 188,596,553 Effective tax rate 1 15.92% 31.50% 1 Income tax expense / profit before income tax Changes in the temporary differences and related deferred tax assets and liabilities for the years ended are as follows: 2017 Temporary differences Defered tax assets (liabilities) Beginning balance Increase Decrease Ending balance Beginning balance Ending balance Accrued expenses \ 822,585,165 \ 663,247,553 \ 822,585,165 663,247,553 \ 123,392,689 134,940,696 Loss on valuation of derivatives 191,702,627 8,900,593,528 191,702,627 8,900,593,528 28,756,539 1,810,865,761 Gain on valuation of derivatives (6,307,411,878) (51,085,244) (6,307,411,878) (51,085,244) (946,149,461) (10,393,523) Currency swap 6,745,388,658 (8,189,596,569) 6,745,388,658 (8,189,596,569) 1,011,848,595 (1,666,210,234) Deferred lease revenues (107,098,830) (83,574,153) (107,098,830) (83,574,153) (19,829,288) (17,003,537) \ 1,345,165,742 \ 1,239,585,115 \ 1,345,165,742 \ 1,239,585,115 \ 198,019,074 \ 252,199,163 2016 Temporary differences Defered tax assets (liabilities) Beginning balance Increase Decrease Ending balance Beginning balance Ending balance Accrued expenses \ 988,523,904 \ 822,585,165 \ 988,523,904 \ 822,585,165 \ 201,955,434 123,392,689 Loss on valuation of derivatives 207,786,354 191,702,627 207,786,354 191,702,627 42,450,752 28,756,539 Gain on valuation of derivatives (5,638,163,546) (6,307,411,878) (5,638,163,546) (6,307,411,878) (1,151,876,812) (946,149,461) Currency swap 6,293,223,450 6,745,388,658 6,293,223,450 6,745,388,658 1,285,705,551 1,011,848,595 Depreciation 453,750-453,750-92,701 - Deferred lease revenues (190,125,189) (132,189,991) (190,125,189) (132,189,991) (38,842,576) (19,829,288) \ 1,661,698,723 \ 1,320,074,581 \ 1,661,698,723 \ 1,320,074,581 \ 339,485,050 \ 198,019,074 The gross balances of deferred tax assets and liabilities as at are as follows: 2017 2016 Defered tax assets Defered tax liabilities Defered tax assets Defered tax liabilities Current \ 1,945,806,457 \ (1,693,607,294) \ 1,163,997,823 \ (965,978,749) 17
10. Monetary Assets and Liabilities Denominated in Foreign Currency Monetary assets and liabilities denominated in foreign currencies as at December 31, 2017 and 2016 are as follows: Foreign Currency 2017 2016 KRW Equivalents Foreign Currency KRW Equivalents Assets in foreign currency Cash and cash equivalents USD 200,920 215,265,238 USD 581,982 703,324,727 Finance lease receivable USD 6,423,254 6,881,874,336 USD 1,775,555 2,145,758,217 Factoring receivable - - - USD 12,011,666 14,516,098,361 Prepaid expenses - - - USD 8,374 10,119,979 USD 6,624,174 7,097,139,574 USD 14,377,577 17,375,301,284 Liabilities in foreign currency Borrowings in foreign currency USD 132,119,230 141,552,543,023 USD 104,139,470 125,852,549,495 Lease deposits USD 1,396,000 1,495,674,400 USD 403,637 487,795,314 Accrued expenses USD 123,899 132,745,496 USD 179,283 216,663,300 Other payables USD 282,000 302,134,800 - - - JPY 14,300,000 135,722,730 - - - USD 133,921,129 143,483,097,719 USD 104,722,390 126,557,008,109 JPY 14,300,000 135,722,730 - - - 11. Share Capital The Company is authorized to issue 40,000 thousand shares with a par value of 5,000. As at December 31, 2017, the Company has issued 4,882 thousand shares (2016: 4,882 thousand shares) of ordinary shares. 12. Retained Earnings The appropriation of retained earnings for the year ended December 31, 2017 is expected to be appropriated at the shareholders meeting on March 30, 2018. The appropriation date for the year ended December 31, 2016 was March 31, 2017. Details of retained earnings as at are as follows: 2017 2016 Unappropriated retained earnings carried over from prior year 4,550,865,018 4,140,830,188 Profit for the period 1,171,861,606 410,034,830 Retained earnings available for appropriation 5,722,726,624 4,550,865,018 Appropriation of retained earnings - - Unappropriated retained earnings to be carried forward 5,722,726,624 4,550,865,018 18
13. Severance Wage In 2017, the Company recognized 348,374,099 (2016: 218,774,146) as severance benefits expenses under the defined contribution pension plan. 14. Selling and Administrative Expenses 2017 2016 Salaries and wages 2,202,854,078 2,413,069,374 Post-employment benefits 348,374,099 218,774,146 Employee benefits 351,321,477 344,854,668 Rent expenses 383,808,663 284,553,830 Insurance premium 32,058,893 34,649,106 Travel expenses 69,952,628 54,463,871 Vehicles maintenance expenses 109,494,724 110,906,658 Entertainment expenses 87,582,253 90,247,172 Depreciation 479,853,241 354,644,070 Supplies expenses 65,425,737 36,546,518 Communication expenses 43,297,477 44,665,772 Service fees 2,384,578,897 2,673,281,387 Taxes and dues 424,813,155 445,455,192 Repairs and maintenance expenses 21,644,760 1,360,700 Advertising expenses 7,859,500 28,377,950 Amortization 546,125 578,438 7,013,465,707 7,136,428,852 15. Value Added Information 2017 2016 Salaries and wages 2,202,854,078 2,290,435,453 Post-employment benefits 348,374,099 218,774,146 Employee benefits 351,321,477 344,854,668 Rent expenses 383,808,663 284,553,830 Depreciation 479,853,241 354,644,070 Taxes and dues 424,813,155 445,455,192 4,191,024,713 3,938,717,359 19
16. Earnings per Share 2017 2016 Profit for the period 1,171,861,606 410,034,830 Weighted average number of ordinary shares outstanding 4,881,574 4,881,574 Basic earnings per share 240 84 17. Significant Transactions Not Affecting Cash Flows Significant transactions not affecting cash flows for the years ended are as follows: 2017 2016 Loans receivable written-off 203,848,738 360,426,457 Finance lease receivables written-off 312,786,687 1,408,881,864 18. Related Party Transactions As at, the Parent Company is DLL International B.V. (percentage of ownership: 100%). As DLL International B.V. is a wholly owned subsidiary of Cooperatieve Rabobank U.A., the ultimate parent company is Rabobank Nederland. Details of associates and other related parties that have sales and other transactions with the Company or have receivables and payables balances as at are as follows: 2017 2016 Ultimate parent company Cooperatieve Rabobank U.A. Cooperatieve Rabobank U.A. Parent company DLL International B.V. DLL International B.V. Oher related parties DLL Ireland DAC DLL Ireland DAC De Lage Landen Pte. Limited De Lage Landen Pte. Limited De Lage Landen Finance Limited De Lage Landen Finance Limited 20
Sales and purchases with related parties for the years ended are as follows: Name of entity 2017 Interest income Fees expenses Interest expenses Parent company DLL International B.V \ - \ 1,333,844,773 \ - Oher related parties DLL Ireland DAC - - 2,738,425,637 De Lage Landen Pte. Limited - 779,139,000 - De Lage Landen Finance Limited 1,612,712 - - \ 1,612,712 \ 2,112,983,773 \ 2,738,425,637 Name of entity 2016 Fees expenses Interest expenses Parent company DLL International B.V \ 1,177,068,653 \ - Oher related parties DLL Ireland DAC - 1,570,949,306 De Lage Landen Pte. Limited 1,073,400,604 - \ 2,250,469,257 \ 1,570,949,306 Outstanding balances arising from sales/purchases of goods and services as at December 31, 2017 and 2016 are as follows: Receivables Other Receivables 2017 Payables Borrowings in foreign currency Accrued Expenses Parent company DLL International B.V \ 51,715,720 \ - \ 11,108,791 Oher related parties DLL Ireland DAC - 141,552,543,023 132,745,496 De Lage Landen Pte. Limited - - 779,139,000 De Lage Landen Finance Limited 52,677,351 - - \ 104,393,071 \ 141,552,543,023 \ 922,993,287 Receivables Other Receivables 2016 Payables Borrowings in foreign currency Accrued Expenses Parent company DLL International B.V \ 142,883,822 \ - \ 53,322,441 Oher related parties DLL Ireland DAC - 125,852,549,495 216,663,300 De Lage Landen Pte. Limited - - 1,073,400,604 De Lage Landen Finance Limited 241,633,354 - - \ 384,517,176 \ 125,852,549,495 \ 1,343,386,345 21
Fund transactions with related parties for the years ended are as follows: Rent 2017 Rental transactions Borrowing transactions Withdraw Borrowings Repayments Oher related parties DLL Ireland DAC \ - \ - \ 98,646,543,323 \ 70,261,894,815 De Lage Landen Finance Limited 1,300,000,000 - - - 2016 Borrowing transactions Borrowings Repayments Oher related parties DLL Ireland DAC \ 50,724,997,100 \ 50,769,815,260 Details of guarantees and collaterals provided by the related parties as at December 31, 2017 and 2016 are presented below: (in Korean won and in US dollar) 2017 Description of Name of entity guarantee Guaranteed amount Guarantee period Ultimate parent company Cooperatieve Rabobank U.A. Derivatives USD 35,000,000 2023.02.28 (in Korean won and in US dollar) Name of entity Related payables 2017 Outstanding balance guarantor Ultimate parent company Cooperatieve Rabobank U.A. Derivatives \ 146,356,648,089 HSBC Seoul Branch (in Korean won and in US dollar) 2016 Description of Name of entity guarantee Guaranteed amount Guarantee period Ultimate parent company Cooperatieve Rabobank U.A. Derivatives USD 35,000,000 2023.02.28 Cooperatieve Rabobank U.A. Borrowings \ 3,500,000,000 2014.12.18 ~2018.3.31 (in Korean won and in US dollar) Name of entity Related payables 2016 Outstanding balance guarantor Ultimate parent company Cooperatieve Rabobank U.A. Derivatives \ 102,844,665,344 HSBC Seoul Branch Cooperatieve Rabobank U.A. Borrowings \ 3,500,000,000 HSBC Seoul Branch 22
19. Derivatives Details of derivatives held for trading as at are as follows: Principal amount 2017 2016 Valuation gain or loss Principal amount Valuation gain or loss Currency forwards \ 146,356,648,089 \ (11,588,112,227) \ 102,844,665,344 \ 3,429,973,618 20. Payment Guarantee Provided Payment guarantees that the Company is receiving, except for related paries as at December 31, 2017 are as follows: Guarantor Guaranteed amount Desciption of guarantee Seoul Guarantee Insurance 267,550,000 Credit offerings 21. Contingencies and Commitments Commitments contracted with the financial institution as at December 31, 2017 are as follows: (in Korean won and in US dollar) Description Maximum amount Used amount KEB Hana Bank General loans \ 2,000,000,000 \ - Open L/C USD 2,000,000 USD 2,000,000 Woori Bank Open L/C USD 3,000,000 USD 253,911 23
To the President of De Lage Landen Co., Ltd. Report on Independent Accountants Review of Internal Accounting Control System We have reviewed the accompanying management s report on the operations of the Internal Accounting Control System ( IACS ) of De Lage Landen Co., Ltd. (the Company ) as of December 31, 2017. The Company s management is responsible for designing and operating IACS and for its assessment of the effectiveness of IACS. Our responsibility is to review the management s report on the operations of the IACS and issue a report based on our review. The management s report on the operations of the IACS of the Company states that based on its assessment of the operations of the IACS as of December 31, 2017, the Company s IACS consists of Internal Accounting Control Policies and organizations, and is in compliance with all the control procedures contained in the Internal Accounting Control Policies as of December 31, 2017, in accordance with the Act on External Audit for Stock Companies. Our review was conducted in accordance with the IACS review standards established by the Korean Institute of Certified Public Accountants. Those standards require that we plan and perform, in all material respects, the review of management s report on the operations of the IACS to obtain a lower level of assurance than an audit. A review is to obtain an understanding of a company s IACS and consists principally of inquiries of management and, when deemed necessary, a limited inspection of underlying documents, which is substantially less in scope than an audit. However, in accordance with Chapter 6, Appendix of the IACS standards, the design, operation and assessment of its IACS are limited compared with those of public small-and medium-sized companies as the Company is a non-public small-mediumsized company, and accordingly its IACS are designed and operated in accordance with Article 2-2 of the Act on External Audit for Stock Companies. As such, we performed our review in accordance with Chapter 14, Review standards for small- and medium-sized companies. A company s IACS is a system to monitor and operate those policies and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the Republic of Korea. Because of its inherent limitations, IACS may not prevent or detect a material misstatement of the financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on our review, nothing has come to our attention that causes us to believe that management s report on the operations of the IACS, referred to above, is not presented fairly, in all material respects, in accordance with Chapter 6, Appendix of the IACS standards established by IACSOC. Our review is based on the Company s IACS as of December 31, 2017, and we did not review management s assessment of its IACS subsequent to December 31, 2017. This report has been prepared pursuant to the Acts on External Audit for Stock Companies in Korea and may not be appropriate for other purposes or for other users. Samil PricewaterhouseCoopers March 30, 2017 24
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