The Group is exposed to credit risk, liquidity risk and market risk. The Group identifies and analyzes such risks, and controls are implemented under a risk management system to monitor and manage these risks at below an acceptable level.

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, which will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currency of the Parent Company, Korean won (KRW). The currencies in which these transactions primarily are denominated are USD, CNY, JPY, etc.

Interest on borrowings is accrued in the currency of the borrowing. Generally, borrowings are denominated in currencies that match the cash flows generated by the underlying operations of the Group, primarily KRW, USD, and CNY.

The Group adopts policies to ensure that its net exposure is kept to a manageable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances. In respect of monetary assets and liabilities denominated in foreign currencies, the Group manages currency risk through continuously managing the position of foreign currencies, measuring the currency risk and, if necessary, using derivatives such as currency forwards, currency swap and others.

Net exposure is the difference between foreign currency assets and liabilities and it includes derivatives assets and liabilities from cross currency interest rate swap contracts and forward exchange contracts.

Cross currency interest rate swap contracts, USD 500 million (2023: USD 500 million) and CNY 726 million (2023: CNY 345 million) were entered into to manage currency risk with respect to foreign currency denominated borrowings and USD 980 million (2023: USD 1,430 million) were entered into to manage currency risk and interest rate risk with respect to foreign currency denominated borrowings and bonds.

Forward exchange contracts, USD 750 million (2023: USD 1,200 million) were entered into to manage currency risk with respect to advances received in foreign currency.

25.

Financial Risk Management, Continued

Average exchange rates applied for the years ended December 31, 2022, 2023 and 2024 and the exchange rates as of December 31, 2023 and 2024 are as follows:


(In won)
	Average rate (year-to-date)						Reporting date spot rate
	2022		2023		2024		December 31, 2023		December 31, 2024
USD	₩	1,291.15		1,306.12		1,363.09		1,289.40		1,470.00
JPY		9.85		9.32		9.01		9.13		9.36
CNY		191.60		184.28		189.13		180.84		201.27
VND		0.0551		0.0548		0.0544		0.0532		0.0577

ii)

Sensitivity analysis

A weaker won, as indicated below, against the following currencies which comprise the Group’s assets or liabilities denominated in a foreign currency as of December 31, 2023 and 2024 would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considers to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, would remain constant. The changes in equity and profit or loss would have been as follows:


(In millions of won)
	December 31, 2023						December 31, 2024
	Equity			Profit or loss			Equity			Profit or loss
USD (5 percent weakening)	₩	(68,615	)		44,361			(7,533	)		(27,651	)
JPY (5 percent weakening)		(8,160	)		(8,480	)		(5,001	)		(5,123	)
CNY (5 percent weakening)		(172,198	)		(2	)		(270,943	)		(1	)
VND (5 percent weakening)		(3,683	)		(3,683	)		(3,303	)		(3,303	)

A stronger won against the above currencies as of December 31, 2023 and 2024 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

iii)

Fair value hedging derivatives

In relation to advances received that are denominated in foreign currency, the Group uses derivative instruments to hedge change of fair value due to foreign currency exchange rate changes.

            Hedging instrument

            Contractor

            Contract amount
(In millions)

            Contract exchange
rate

            Maturity date

            Change in value
(In millions of won)

            Ineffective portion
of risk hedging
(In millions of won)

Forward

Standard Chartered Bank Korea Limited
and others

USD 750

1,289.11 ~ 1,310.08

2025.01 ~ 
2026.01

155,149

19,699

25.

Financial Risk Management, Continued

(ii)

Interest rate risk

Interest rate risk arises principally from the Group’s variable interest-bearing bonds and borrowings. The Group establishes and applies its policy to reduce uncertainty arising from fluctuations in interest rates and to minimize finance cost and manages interest rate risk by monitoring of trends of fluctuations in interest rate and establishing plan for countermeasures. Meanwhile, the Group entered into cross currency interest rate swap contracts amounting to USD 980 million (W1,440,600 million) and interest rate swap contracts amounting to W915,000 million in notional amount to hedge interest rate risk with respect to variable interest bearing borrowings.

Profile

The interest rate profile of the Group’s interest-bearing financial instruments as of December 31, 2023 and 2024 is as follows:


(In millions of won)
	December 31, 2023			December 31, 2024
Fixed rate instruments
Financial assets	₩	3,163,490			2,023,710
Financial liabilities		(6,333,238	)		(4,722,962	)
Total	₩	(3,169,748	)		(2,699,252	)
Variable rate instruments
Financial liabilities	₩	(10,195,891	)		(9,827,152	)

ii)

Equity and profit or loss sensitivity analysis for variable rate instruments

As of December 31, 2023 and 2024, a change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below for the respective following 12 month periods. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.


(In millions of won)
	Equity					Profit or loss
	1%p increase			1%p decrease		1%p increase			1%p decrease
December 31, 2023
Variable rate instruments (*)	₩	(78,590	)		78,590		(78,590	)		78,590
December 31, 2024
Variable rate instruments (*)	₩	(75,758	)		75,758		(75,758	)		75,758

(*) Included financial instruments for which interest rate swap contracts, not designated as hedging instruments, were entered into.

(b)

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s receivables from customers.

The Group’s exposure to credit risk of trade and other receivables is influenced mainly by the individual characteristics of each customer. However, management believes that the default risk of the country in which each customer operates, does not have a significant influence on credit risk since the majority of the customers are global electronic appliance manufacturers operating in global markets.

The Group establishes credit limits for each customer and each new customer is analyzed quantitatively and qualitatively before determining whether to utilize third party guarantees, insurance or factoring as appropriate.

25.

Financial Risk Management, Continued

In relation to the impairment of financial assets subsequent to initial recognition, the Group recognizes the changes in expected credit loss (“ECL”) in profit or loss at each reporting date.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk as of December 31, 2023 and 2024 is as follows:


(In millions of won)
	December 31, 2023		December 31, 2024
Financial assets carried at amortized cost
Cash equivalents	₩	2,257,519		2,021,640
Deposits in banks		905,982		611
Trade accounts and notes receivable, net(*)		3,218,093		3,624,477
Non-trade receivables		112,739		227,477
Accrued income		14,246		22,552
Deposits		18,378		16,747
Loans		59,884		37,143
Subtotal		6,586,841		5,950,647
Other financial assets
Lease receivables		4,130		10,063
Subtotal	₩	4,130		10,063
Financial assets at fair value through profit or loss
Convertible securities	₩	3,127		1,470
Derivatives		169,703		256,251
Subtotal	₩	172,830		257,721
Financial assets effective for fair value hedging
Derivatives		—		119,098
Total	₩	6,763,801		6,337,529

(*) As of December 31, 2024, it includes financial assets amounting to W1,123,869 million held under the business model to achieve the purpose through the receipt of contractual cash flows and the sale of financial assets are included.

Trade accounts and notes receivable are insured in order for the Group to manage credit risk if they do not meet the Group’s internal credit ratings. Uninsured trade accounts and notes receivable are managed by continuous monitoring of internal credit rating standards established by the Group and seeking insurance coverage, if necessary.

There are no significant concentrations of credit risk, whether through exposure to individual customers, specific industry sectors and/or regions.

(c)

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or other financial assets. The Group’s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.

The Group has historically been able to satisfy its cash requirements from cash flows from operations and debt and equity financing. In addition, the Group maintains a line of credit with various banks.

25.

Financial Risk Management, Continued

The following are the contractual maturities of financial liabilities, including estimated interest payments, as of December 31, 2023 and 2024.


			2023
(In millions of won)			Contractual cash flows in
	Carrying amount		Total			6 months or less			6-12 months			1-2 years			2-5 years			More than 5 years
Non-derivative financial liabilities
Borrowings	₩	15,040,986		16,309,036			3,534,173			1,900,982			6,231,118			4,397,095			245,668
Bonds		1,488,143		1,597,741			111,169			319,011			642,996			524,565			—
Trade accounts and notes payable(*)		4,175,064		4,175,064			3,969,497			205,567			—			—			—
Other accounts payable(*)		2,918,903		2,921,719			2,688,979			232,740			—			—			—
Long-term other accounts payable		357,907		413,255			—			—			129,587			175,358			108,310
Security deposits received		153,370		190,329			3,120			4,597			1,047			181,565			—
Lease liabilities		73,364		77,246			29,980			21,335			11,848			11,461			2,622
Derivative financial liabilities
Derivatives	₩	63,526		45,705			18,781			3,988			12,474			10,462			—
Cash outflow		—		1,385,858			657,325			47,527			510,676			170,330			—
Cash inflow		—		(1,340,153	)		(638,544	)		(43,539	)		(498,202	)		(159,868	)		—
Fair value hedging derivatives		36,052		36,052			1,514			5,878			20,282			8,378			—
Total	₩	24,307,315		25,766,147			10,357,213			2,694,098			7,049,352			5,308,884			356,600

(*) As of December 31, 2023, it includes W1,092,180 million of payable to credit card companies for utility expenses and others paid using business credit card for purchases. The Group presented the payable to credit card companies as other accounts payable and disclosed related cash flows as operating and investing activities since the Group is using the business credit card for purchases through agreements with suppliers for transactions arising from purchasing of goods and services, the payment term is within a year from the purchase, as part of the normal operating cycle, and no collateral is provided.

25.

Financial Risk Management, Continued


			2024
(In millions of won)			Contractual cash flows in
	Carrying amount		Total			6 months or less			6-12 months			1-2 years			2-5 years			More than 5 years
Non-derivative financial liabilities
Borrowings	₩	13,412,275		14,453,995			3,730,807			2,609,727			3,941,215			4,146,933			25,313
Bonds		1,137,839		1,185,892			631,539			11,638			416,573			126,142			—
Trade accounts and notes payable(*)		4,156,149		4,156,149			3,884,788			271,361			—			—			—
Other accounts payable(*)		1,720,670		1,723,867			1,404,896			318,971			—			—			—
Long-term other accounts payable		279,774		323,400			—			—			69,090			192,570			61,740
Security deposits received		160,713		189,214			—			808			6,841			181,565			—
Lease liabilities		57,975		60,653			23,948			12,681			13,889			9,423			712
Derivative financial liabilities
Derivatives	₩	10,768		11,184			930			3,447			4,495			2,312			—
Cash outflow		—		75,016			21,402			20,467			22,342			10,805			—
Cash inflow		—		(63,832	)		(20,472	)		(17,020	)		(17,847	)		(8,493	)		—
Total	₩	20,936,163		22,104,354			9,676,908			3,228,633			4,452,103			4,658,945			87,765

(*) As of December 31, 2024, it includes W1,187,450 million of payable to credit card companies for utility expenses and others paid using business credit card for purchases. The Group presented the payable to credit card companies as trade account notes payables and other accounts payable and disclosed related cash flows as operating and investing activities since the Group is using the business credit card for purchases through agreements with suppliers for transactions arising from purchasing of goods and services, the payment term is within a year from the purchase, as part of the normal operating cycle, and no collateral is provided.

25.

Financial Risk Management, Continued


(In millions of won)	December 31, 2023				December 31, 2024
	Carrying amounts		Fair values		Carrying amounts		Fair values
Financial assets carried at amortized cost
Cash and cash equivalents	₩	2,257,522	(*1)			2,021,640	(*1)
Deposits in banks		905,982	(*1)			611	(*1)
Trade accounts and notes receivable (*3)		3,218,093	(*1)			3,624,477	(*1)
Non-trade receivables		112,739	(*1)			227,477	(*1)
Accrued income		14,246	(*1)			22,552	(*1)
Deposits		18,378	(*1)			16,747	(*1)
Loans		59,884	(*1)			37,143	(*1)
Financial assets at fair value through profit or loss
Equity instruments	₩	87,027		87,027		120,501		120,501
Convertible securities		3,127		3,127		1,470		1,470
Derivatives		169,703		169,703		256,251		256,251
Financial assets effective for fair value hedging
Derivatives		—		—		119,098		119,098
Other Financial assets
Lease receivables		4,130	(*1)			10,063	(*1)
Financial liabilities carried at amortized cost
Borrowings	₩	15,040,986		15,101,258		13,412,275		13,482,726
Bonds		1,488,143		1,479,725		1,137,839		1,142,725
Trade accounts and notes payable		4,175,064	(*1)			4,156,149	(*1)
Other accounts payable		3,276,810	(*1)			2,000,444	(*1)
Security deposits received		153,370	(*1)			160,713	(*1)
Financial liabilities at fair value through profit or loss
Derivatives		63,526		63,526		10,768		10,768
Financial liabilities effective for fair value hedging
Derivatives		36,052		36,052		—		—
Other Financial liabilities
Lease liabilities		73,364	(*2)			57,975	(*2)

(*1) Excluded from disclosures as the carrying amount approximates fair value.

(*2) Excluded from the fair value disclosures in accordance with IFRS 7 ‘Financial Instruments: Disclosures’.

(*3) As of December 31, 2024, it includes financial assets amounting to W1,123,869 million held under the business model to achieve the purpose through the receipt of contractual cash flows and the sale of financial assets are included.

25.

Financial Risk Management, Continued

(iii)

Fair values of financial assets and liabilities

Fair value hierarchy

Financial instruments carried at fair value are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques. The different levels have been defined as follows:

▪

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

▪

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

▪

Level 3: inputs for the asset or liability that are not based on observable market data

The Group measures fair value for financial reporting purposes, including fair value measurements categorized as Level 3, and consults on the fair value assessment process and its results in accordance with the financial reporting schedule.

ii)

Valuation techniques and inputs for Assets and Liabilities measured by the fair value hierarchy

Fair value hierarchy classifications of the financial instruments that are measured at fair value as of December 31, 2023 and 2024 are as follows:


(In millions of won)	December 31, 2023
Classification	Level 1		Level 2		Level 3		Total
Financial assets at fair value through profit or loss
Equity securities	₩	—		—		87,027		87,027
Convertible securities		—		—		3,127		3,127
Derivatives		—		169,703		—		169,703
Financial liabilities at fair value through profit or loss
Derivatives	₩	—		63,526		—		63,526
Financial liabilities effective for fair value hedging
Derivatives	₩	—		36,052		—		36,052


	December 31, 2024
(In millions of won)
Classification	Level 1		Level 2		Level 3		Total
Financial assets at fair value through profit or loss
Equity securities	₩	18,958		—		101,543		120,501
Convertible securities		—		—		1,470		1,470
Derivatives		—		256,251		—		256,251
Financial assets effective for fair value hedging
Derivatives	₩	—		119,098				119,098
Financial liabilities at fair value through profit or loss
Derivatives	₩	—		10,768		—		10,768

25.

Financial Risk Management, Continued

The valuation techniques and inputs for assets and liabilities measured at fair value those are classified as Level 2 and Level 3 within the fair value hierarchy as of December 31, 2023 and 2024 are as follows:


(In millions of won)	December 31, 2023				December 31, 2024
Classification	Level 2		Level 3		Level 2		Level 3		Valuation technique	Input
Financial assets at fair value through profit or loss
Equity securities	₩	—		87,027		—		101,543	Net asset value method and Comparable company analysis	Price to book value ratio
Convertible securities		—		3,127		—		1,470	Blended discount model and binominal option pricing model	Discount rate, stock price and volatility
Derivatives		169,703		—		256,251		—	Discounted cash flow	Discount rate and Exchange rate
Financial assets effective for fair value hedging
Derivatives	₩	—		—		119,098		—	Discounted cash flow	Discount rate and Exchange rate
Financial liabilities at fair value through profit or loss
Derivatives	₩	63,526		—		10,768		—	Discounted cash flow	Discount rate and Exchange rate
Financial liabilities effective for fair value hedging
Derivatives	₩	36,052		—		—		—	Discounted cash flow	Discount rate and Exchange rate

iii)

Financial instruments not measured at fair value but for which the fair value is disclosed

Fair value hierarchy classifications, valuation technique and inputs for fair value measurements of the financial instruments not measured at fair value but for which the fair value is disclosed as of December 31, 2023 and 2024 are as follows:

            (In millions of won)

            December 31, 2023

            Classification

            Level 1

            Level 2

            Level 3

            Valuation technique

            Input

            Liabilities

Borrowings

₩

—

—

15,101,258

Discounted cash flow

Discount rate

Bonds

—

—

1,479,725

Discounted cash flow

Discount rate

            (In millions of won)

            December 31, 2024

            Classification

            Level 1

            Level 2

            Level 3

            Valuation technique

            Input

            Liabilities

Borrowings

₩

—

—

13,482,726

Discounted cash flow

Discount rate

Bonds

—

—

1,142,725

Discounted cash flow

Discount rate

iv)

The interest rates applied for determination of the above fair value as of December 31, 2023 and 2024 are as follows:


	December 31, 2023	December 31, 2024
Borrowings, bonds and others	4.60%~5.02%	3.70%~3.96%

25.

Financial Risk Management, Continued

There is no transfer between Level 1, Level 2 and Level 3 for the years ended December 31, 2023 and 2024, and the changes in financial assets classified as Level 3 of fair value measurements for the years ended December 31, 2023 and 2024 are as follows:


(In millions of won)
Classification	January 1, 2023		Acquisition		Disposal			Valuation			Changes in Foreign Exchange Rates			December 31, 2023
Equity securities	₩	96,064		3,286		(414	)		(13,315	)		1,406			87,027
Convertible securities		1,797		1,329		—			41			(40	)		3,127


(In millions of won)
Classification	January 1, 2024		Acquisition		Disposal			Valuation			Changes in Foreign Exchange Rates		December 31, 2024
Equity securities	₩	87,027		5,470		(128	)		(2,809	)		11,983		101,543
Convertible securities		3,127		—		(1,838	)		—			181		1,470

(f)

Net gains and losses by category of financial instruments

The net gains and losses by category of financial instruments for the years ended December 31, 2022, 2023 and 2024 are as follows:


(In millions of won)
	2022
	Financial assets at amortized cost			Financial liabilities at amortized cost			Financial assets at FVTPL		Financial liabilities at FVTPL			Derivatives (*)		Total
Interest income	₩	85,624			—			—		—			—		85,624
Interest expense		—			(403,415	)		—		(11,106	)		—		(414,521	)
Foreign currency differences		1,061,416			(946,650	)		—		(105,492	)		—		9,274
Reversal of bad debt expense		569			—			—		—			—		569
Gain or loss on disposal		(37,087	)		—			171		(2,672	)		—		(39,588	)
Gain or loss on valuation		—			—			6,473		220,240			—		226,713
Gain or loss on derivative		—			—			—		—			177,130		177,130
Others		—			—			—		(43	)		—		(43	)
Total	₩	1,110,522			(1,350,065	)		6,644		100,927			177,130		45,158

(*) Derivatives exclude cash flow hedging derivatives.

25.

Financial Risk Management, Continued


(In millions of won)
	2023
	Financial assets at amortized cost			Financial liabilities at amortized cost			Financial assets at FVTPL			Financial assets at FVOCI			Derivatives			Others			Total
Interest income	₩	134,388			—			—			—			—			276			134,664
Interest expense		—			(720,086	)		—			—			—			(3,343	)		(723,429	)
Foreign currency differences		108,546			(176,376	)		—			—			(36,052	)		—			(103,882	)
Reversal of bad debt expense		181			—			—			—			—			—			181
Gain or loss on disposal		(48,600	)		—			132			(329	)		—			—			(48,797	)
Gain or loss on valuation		—			—			(13,274	)		—			—			—			(13,274	)
Gain or loss on repayment		—			(167	)		—			—			—			—			(167	)
Gain or loss on derivatives		—			—			—			—			102,116			—			102,116
Total	₩	194,515			(896,629	)		(13,142	)		(329	)		66,064			(3,067	)		(652,588	)


(In millions of won)
	2024
	Financial assets at amortized cost			Financial liabilities at amortized cost			Financial assets at FVTPL			Financial assets at FVOCI			Derivatives		Others			Total
Interest income	₩	87,510			—			—			—			—		182			87,692
Interest expense		—			(906,766	)		—			—			—		(2,874	)		(909,640	)
Foreign currency differences		1,189,874			(2,238,150	)		—			—			190,906		—			(857,370	)
Bad debt expense		(689	)		—			—			—			—		—			(689	)
Gain or loss on disposal		(7,708	)		—			(109	)		(18,470	)		—		—			(26,287	)
Gain or loss on valuation		—			—			(8,590	)		—			—		—			(8,590	)
Gain or loss on repayment		—			(678	)		—			—			—		—			(678	)
Gain or loss on derivatives		—			—			—			—			413,480		—			413,480
Total	₩	1,268,987			(3,145,594	)		(8,699	)		(18,470	)		604,386		(2,692	)		(1,302,082	)