LG Energy Solution : 2023 4Q Audit Report

LG ENERGY SOLUTION, LTD.

AND ITS SUBSIDIARIES

Consolidated Financial Statements

As of and For the Years Ended December 31, 2023 and 2022

(With the Independent Auditor's Report Thereon)

Table of Contents

Independent Auditor's Report

	Page
Consolidated Financial Statements
Consolidated Statements of Financial Position	1
Consolidated Statements of Profit or Loss	2
Consolidated Statements of Comprehensive Income	3
Consolidated Statements of Changes in Equity	4
Consolidated Statements of Cash Flows	5
Notes to the Consolidated Financial Statements	6
Independent Auditor's Report on Consolidated Internal Control over Financial	93
Reporting
Report on the Operation of Consolidated Internal Control over Financial Reporting	95

Deloitte Anjin LLC

9F., One IFC,

10, Gukjegeumyung-ro,

Youngdeungpo-gu, Seoul

07326, Korea

Tel: [phone]

Fax: [phone]

www.deloitteanjin.co.kr

Independent Auditor's Report

English Translation of Independent Auditor's Report Originally Issued in Korean on March 7, 2024

To the Shareholders and the Board of Directors of LG Energy Solution, Ltd.:

Audit Opinion

We have audited the consolidated financial statements of LG Energy Solution, Ltd. and its subsidiaries (the "Group"), which comprise the consolidated statements of financial position as of December 31, 2023 and 2022, and the related consolidated statements of profit or loss, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows, all expressed in Korean won, for the years then ended, and notes to the consolidated financial statements, including material accounting policy information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2023 and 2022, and its financial performance and its cash flows for the years then ended in accordance with Korean International Financial Reporting Standards ("K-IFRSs").

We have also audited, in accordance with the Korean Standards on Auditing ("KSAs"), the internal control over financial reporting of the Group as of December 31, 2023, based on the 'Conceptual Framework for Design and Operation of Internal Control Over Financial Reporting', and our report dated March 07, 2024, expressed an unqualified opinion.

Basis for Audit Opinion

We conducted our audits in accordance with the KSAs. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audits of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audits of the consolidated financial statements in the Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Key Audit Matters

The key audit matters are those matters that, in our professional judgment, were of most significance in our audits of the consolidated financial statements of the current period. These matters were addressed in the context of our audits of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

GM Recall Warranty Provisions

1) Description of Key Audit Matter

As stated in Note 4 of the consolidated financial statements, the warranty provisions for voluntary recalls related to the customers are estimated based on the number of vehicles subject to recall, the expected total repair costs and the cost- sharing ratio, etc. General Motors Company ("GM"), the Group's customer, voluntarily decided to recall certain vehicles during the year ended December 31, 2021, and the estimated amount of the provision the Group has recognized for this recall is ￦96,857 million, as of December 31, 2023.

We have assessed this item as a key audit matter, considering that the recognized amount of the warranty provision is material and the significant management judgment is involved in estimation.

1. How our audit addressed the Key Audit Matter Our procedures included the following:
2. • Evaluate whether the Group's policies and internal controls for recognizing and measuring warranty provisions are effectively designed and operated.
   • Perform the following procedures to assess the reasonableness of the key assumptions used by management:
   • • Compare the underlying data with external and internal sources of information.
     • Engage an auditor's expert to evaluate the reasonableness of the key assumptions and variables used by management.
   • Evaluate the competence and objectivity of the external expert engaged by management.
   • Independently recalculate the balance of the provision.
   • Assess the adequacy of the related footnote disclosures.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation of the accompanying consolidated financial statements in accordance with K-IFRSs,and for such internal control as they determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management of the Group is responsible for assessing the Group's ability to continue as a going concern; disclosing, as applicable, matters related to going concern; and using the going- concern basis of accounting, unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative, but to do so.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audits of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements, as a whole, are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with KSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with KSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error; design and perform audit procedures responsive to those risks; and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override, of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of the management's use of the going-concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty
  exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group's audit. We are solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and significant audit findings, including any significant deficiencies in internal control that we identify during our audits.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, related safeguards.

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

The engagement partner on the audit resulting in this independent auditor's report is Kiu Seok Seo.

March 7, 2024

This report is effective as of March 7, 2024, the auditor's report date. Certain subsequent events or circumstances may have occurred between the auditor's report date and the time the auditor's report is read. Such events or circumstances could significantly affect the consolidated financial statements and may result in modifications to the auditor's report.

LG ENERGY SOLUTION, LTD.

AND ITS SUBSIDIARIES

Consolidated financial statements

as of and for the years ended December 31, 2023 and 2022

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

Young Soo Kwon

Chief Executive Officer

LG Energy Solution, Ltd.

LG Energy Solution, Ltd. and its subsidiaries

Consolidated statements of financial position

As of December 31, 2023 and 2022

(Korean won in millions)
	Notes			December 31, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	3,5,6		￦	5,068,783			￦	5,937,967
Trade receivables	3,5,7,30			5,128,474				4,771,846
Other receivables	3,5,7,30			555,186		462,188
Other current financial assets	3,5,8			65,439				9,167
Prepaid income taxes				67,072				46,205
Other current assets	13			927,106		581,267
Inventories	9			5,396,336				6,995,629
				17,208,396			18,804,269
Non-current assets
Trade receivables	3,5,7			129,995		120,698
Other receivables	3,5,7,30			122,282		119,058
Other non-current financial assets	3,5,8			357,038		408,551
Investments in associates and joint ventures	10,30			223,559		203,696
Deferred tax assets	27			2,228,924				2,100,492
Property, plant and equipment	11,18,32			23,654,677			15,331,047
Intangible assets	12,32			875,993		642,090
Investment properties	32,34			212,489		213,042
Other non-current assets	13,16			423,791			356,502
				28,228,748			19,495,176
Total assets			￦	45,437,144			￦	38,299,445
Liabilities
Current liabilities
Trade payables	3,5,30		￦	3,093,719			￦	3,841,766
Other payables	3,5,30			3,458,103				2,882,030
Borrowings	3,5,11,14,31			3,211,456				2,866,701
Provisions	15			517,170		976,949
Other current financial liabilities	3,5,8			7,652		3,923
Income tax payables				33,321				173,120
Other current liabilities	17,33			615,764			700,434
				10,937,185			11,444,923
Non-current liabilities
Non-current other payables	3,5,30			25,291				36,606
Borrowings	3,5,11,14,31			7,720,832				5,242,552
Other non-current financial liabilities	3,5,8			68,824				742
Provisions	15			869,123		518,781
Net defined benefit liabilities	16			239		499
Deferred tax liabilities	27			19,958				108,350
Other non-current liabilities	17,33			1,422,183				353,230
				10,126,450			6,260,760
Total liabilities				21,063,635			17,705,683
Equity attributable to owners of
the Parent Company
Share capital	19			117,000		117,000
Capital surplus	19			17,164,627			17,164,627
Accumulated other comprehensive income				554,518		296,070
Retained earnings	20			2,364,496				1,154,518
				20,200,641			18,732,215
Non-controlling interest	1			4,172,868				1,861,547
Total equity				24,373,509			20,593,762
Total liabilities and equity			￦	45,437,144		￦	38,299,445

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

1

LG Energy Solution, Ltd. and its subsidiaries

Consolidated statements of profit or loss

For the years ended December 31, 2023 and 2022

(Korean won in millions)

	Notes			2023			2022
Revenue	30,33,35		￦	33,745,470		￦	25,598,609
Cost of sales	21,22,30			28,802,437			21,308,077
Gross profit				4,943,033			4,290,532
Other operating income				676,874			-
Selling and administrative expenses	21,22,30			3,456,673			3,076,813
Operating profit				2,163,234			1,213,719
Finance income	5,24,30			984,984			385,537
Finance costs	5,24,30			857,201			519,021
Share of loss of associates and joint ventures	10			(32,450)		(36,641)
Other non-operating income	25			1,125,846			1,349,485
Other non-operating expenses	26			1,340,953			1,397,765
Profit before income tax expense				2,043,460			995,314
Income tax expense	27			405,475			215,488
Profit for the period			￦	1,637,985		￦	779,826
Profit for the period attributable to:

Owners of the Parent Company

Non-controlling interests:

Earnings per share attributable to the equity holders of the Parent Company (in Korean won)

Basic or diluted earnings per share

￦	1,237,180	￦	767,236
1	400,805		12,590

28

5,2873,306

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

2

LG Energy Solution, Ltd. and its subsidiaries

Consolidated statements of comprehensive income

For the years ended December 31, 2023 and 2022

(Korean won in millions)

	Notes			2023			2022
Profit for the year			￦	1,637,985		￦	779,826
Other comprehensive income:
Items that will not be subsequently reclassified to profit or loss:
Remeasurements of net defined benefit liabilities	16			(35,273)		68,543
Gain (loss) on valuation of financial assets at FVOCI	5			(136,381)		54,743
Income tax effect of other comprehensive income (loss)				39,393			(36,145)
				(132,261)		87,141
Items that may be subsequently reclassified to profit or loss:
Exchange differences on translation of foreign operations				405,378			(96,207)
Gain (loss) on cash flow hedge	5			(17,203)		6,021
Share of other comprehensive income of associates and joint ventures	10			4,543		14,771
Income tax effect of other comprehensive income (loss)				12,686			(39,175)
				405,404			(114,590)
Other comprehensive income (loss) for the period, net of tax				273,143			(27,449)
Total comprehensive income for the period, net of tax			￦	1,911,128	￦	752,377
Total comprehensive income for the period attributable to:
Owners of the Parent Company			￦	1,468,426		￦	706,907
Non-controlling interest				442,702			45,470

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

3

LG Energy Solution, Ltd. and its subsidiaries

Consolidated statements of changes in equity

For the years ended December 31, 2023 and 2022

(Korean won in millions)						Attributable to the equity holders of the Parent Company
										Accumulated		Retained
										other		earnings
				Share		Capital		comprehensive	(accumulated				Non-controlling
	Notes			capital			surplus			income (loss)			deficit)			Subtotal			interests			Total
As of January 1, 2022			￦	100,000	￦	7,122,437		￦	406,092	￦	337,587	￦	7,966,116		￦	776,257	￦	8,742,373
Comprehensive income for the period:
Profit for the period				-			-			-			767,236		767,236		12,590			779,826
Remeasurements of net defined benefit liabilities	16			-			-			-			49,695			49,695			-		49,695
Exchange differences on translation of foreign operations				-			-			(166,655)		-			(166,655)		32,878			(133,777)
Gain on valuation of financial assets at FVOCI	5			-			-			37,447			-			37,447			-		37,447
Gain on cash flow hedge	5			-			-			4,415		-			4,415		-		4,415
Equity adjustments in equity method	10			-			-			14,771			-			14,771			-		14,771
Total comprehensive income for the period				-			-			(110,022)		816,931		706,909		45,468			752,377
Transactions with owners of the Parent Company recognized directly
in equity:

Capital increase

Others

Total Transactions with owners of the Parent Company recognized directly in equity

17,000	10,079,370	-	-	10,096,370	1,039,822		11,136,192
-		(37,180)	-	-	(37,180)	-	(37,180)
17,000		10,042,190	-	-	10,059,190	1,039,822		11,099,012

As of December 31, 2022		￦	117,000		￦	17,164,627	￦	296,070	￦	1,154,518		￦	18,732,215	￦	1,861,547		￦	20,593,762
As of January 1, 2023		￦	117,000		￦	17,164,627	￦	296,070	￦	1,154,518		￦	18,732,215	￦	1,861,547		￦	20,593,762
Comprehensive income for the period:
Profit for the period			-			-			-			1,237,180			1,237,180			400,805		1,637,985
Remeasurements of net defined benefit liabilities	16		-			-			-			(27,202)		(27,202)		-		(27,202)
Exchange differences on translation of foreign operations			-			-			371,891		-			371,891		41,897			413,788
Loss on valuation of financial assets at FVOCI	5		-			-			(105,060)		-			(105,060)		-		(105,060)
Loss on cash flow hedge	5		-			-			(12,926)		-			(12,926)		-		(12,926)
Equity adjustments in equity method	10		-			-			4,543		-			4,543		-		4,543
Total comprehensive income for the period			-			-			258,448		1,209,978			1,468,426			442,702		1,911,128
Transactions with owners of the Parent Company recognized directly
in equity:
Capital increase and others			-			-			-			-			-			1,868,619			1,868,619
Total transactions with owners of the Parent Company recognized			-			-			-			-			-			1,868,619			1,868,619
directly in equity
As of December 31, 2023		￦	117,000		￦	17,164,627	￦	554,518	￦	2,364,496		￦	20,200,641	￦	4,172,868		￦	24,373,509

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

4