LG Energy Solution : 2023 4Q Audit Report

LG ENERGY SOLUTION, LTD.

Separate 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
Separate Financial Statements
Separate Statements of Financial Position	1
Separate Statements of Profit or Loss	2
Separate Statements of Comprehensive Income	3
Separate Statements of Changes in Equity	4
Separate Statements of Cash Flows	5
Notes to the Separate Financial Statements	6
Independent Auditor's Report on Internal Control over Financial Reporting	75
Report on the Operation of Internal Control over Financial Reporting	77

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 separate financial statements of LG Energy Solution, Ltd. (the "Company"), which comprise the separate statement of financial position as of December 31, 2023 and 2022, respectively, and the separate statement of profit or loss, the separate statement of comprehensive income, separate statement of changes in equity and separate statement of cash flows, all expressed in Korean won, for the years then ended, and notes to the separate financial statements, including material accounting policy information.

In our opinion, the accompanying separate financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, respectively, 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 Company 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 7, 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 Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the separate 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 separate financial statements of the current period. These matters were addressed in the context of our audits of the separate 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 separate 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 Company's customer, voluntarily decided to recall certain vehicles during the year ended December 31, 2021, and the estimated amount of the warranty provisions the Company 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 Company's policies and internal controls for recognizing and measuring the 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 warranty provisions.
   • Assess the adequacy of the related footnote disclosures.

Responsibilities of Management and Those Charged with Governance for the Separate Financial Statements

Management is responsible for the preparation of the accompanying separate financial statements in accordance with K-IFRS, and for such internal control as they determine is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the separate financial statements, management of the Company is responsible for assessing the Company'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 Company or to cease operations, or has no realistic alternative but to do so.

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

Auditor's Responsibilities for the Audit of the Separate Financial Statements

Our objectives are to obtain reasonable assurance about whether the separate 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 separate 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 separate 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 Company'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 separate 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 Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

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 audits of the separate 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 separate financial statements and may result in modifications to the auditor's report.

LG ENERGY SOLUTION, LTD.

Separate financial statements

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

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

Young Soo Kwon

Chief Executive Officer

LG Energy Solution, Ltd.

LG Energy Solution, Ltd.

Separate 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		￦	1,855,224		￦	4,828,152
Trade receivables	3,5,7,30			2,289,892				2,207,153
Other receivables	3,5,7,30			1,173,761				1,232,735
Prepaid income taxes	27			15,132				19,657
Other current financial assets	3,5,8			65,400				-
Other current assets	13			118,776			109,119
Inventories	9			1,265,558				1,598,728
				6,783,743				9,995,544
Non-current assets
Trade receivables	3,5,7			127,946				120,698
Other receivables	3,5,7,30			153,173				168,940
Other non-current financial assets	3,5,8			287,187				360,295
Investments in subsidiaries	10			9,847,300				7,311,276
Investments in associates and joint ventures	10			271,463				236,270
Deferred tax assets	27			1,598,516				1,541,995
Property, plant and equipment	11,18			3,383,740				2,504,936
Intangible assets	12			712,217				513,483
Investment properties	33			212,650				213,289
Other non-current assets	13,16			168,004				236,084
				16,762,196				13,207,266
Total assets			￦	23,545,939		￦	23,202,810
Liabilities
Current liabilities
Trade payables	3,5,30		￦	1,097,287		￦	1,605,551
Other payables	3,5,30			983,134				961,370
Borrowings	3,5,11,14,31			670,418				691,115
Other current financial liabilities	3,5,8			58,440				66,054
Current provisions	15			374,710				804,254
Other current liabilities	17,32			326,930				479,751
				3,510,919				4,608,095
Non-current liabilities
Other non-current payables	3,5,30			3,368			3,315
Borrowings	3,5,11,14,31			3,149,383				1,501,942
Other non-current financial liabilities	3,5,8			68,368				322
Non-current provisions	15			152,295				121,298
Other non-current liabilities	17,32			60,112				173,266
				3,433,526				1,800,143
Total liabilities			￦	6,944,445		￦	6,408,238
Equity
Share capital	19		￦	117,000	￦	117,000
Capital surplus	19			17,589,722				17,589,722
Accumulated other comprehensive income				(53,516)			46,640
Accumulated deficit	20			(1,051,712)			(958,790)
Total equity				16,601,494				16,794,572
Total liabilities and equity			￦	23,545,939		￦	23,202,810

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

1

LG Energy Solution, Ltd.

Separate statements of profit or loss

For the years ended December 31, 2023 and 2022

(Korean won in millions)
	Notes			2023			2022
Revenue	21,30,32		￦	12,288,439		￦	10,581,787
Cost of sales	21,22,30			9,881,450			8,962,110
Gross profit	21			2,406,989			1,619,677
Selling and administrative expenses	21,22,30			2,725,903			2,296,187
Operating loss	21			(318,914)			(676,510)
Finance income	24,30			615,296			350,059
Finance costs	24,30			575,148			294,184
Other non-operating income	25			729,536			537,713
Other non-operating expenses	26			424,544			600,393
Gain (loss) before income tax benefit				26,226			(683,315)
Income tax expense (benefit)	27			91,915			(155,188)
Loss for the year	20		￦	(65,689)		￦	(528,127)
Loss per share attributable to the equity holders	28
of the company (in Korean won)
Basic or diluted losses per share			￦	(281)		￦	(2,276)

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

2

LG Energy Solution, Ltd.

Separate statements of comprehensive income

For the years ended December 31, 2023 and 2022

(Korean won in millions)
	Notes		2023			2022
Loss for the year		￦	(65,689)	￦	(528,127)
Other comprehensive income:
Items that will not be subsequently reclassified to profit or loss:
Remeasurements of net defined benefit liabilities	16		(35,317)		68,517
Gain (loss) on valuation of financial assets at FVOCI	5		(129,038)			60,047
Income tax effect of other comprehensive income			37,621			(35,355)
			(126,734)			93,209
Items that may be subsequently reclassified to profit or loss:
Loss on cash flow hedge	5		(850)		(1,154)
Income tax effect of other comprehensive income			195			317
			(655)		(837)
Other comprehensive income (loss) for the year, net of tax			(127,389)			92,372
Total comprehensive loss for the year, net of tax		￦	(193,078)		￦	(435,755)

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

3

LG Energy Solution, Ltd.

Separate statements of changes in equity

For the years ended December 31, 2023 and 2022

(Korean won in millions)
										Accumulated
										other	Retained earnings
				Share		Capital		comprehensive		(accumulated
	Notes			capital			surplus			income(loss)			deficit)			Total
As of January 1, 2022			￦	100,000		￦	7,510,351		￦	3,943	￦	(480,338)	￦	7,133,956
Comprehensive income (loss) for the period:
Loss for the year				-			-			-			(528,127)		(528,127)
Remeasurements of net defined benefit liabilities	16			-			-			-			49,675			49,675
Gain (loss) on valuation of financial assets at FVOCI	5			-			-			43,534			-		43,534
Loss on cash flow hedge	5			-			-			(837)		-		(837)
Total comprehensive income for the year
			-			-			42,697			(478,452)		(435,755)
Transactions with owners
Capital increase				17,000			10,079,371			-			-		10,096,371
Total transactions with owners
			17,000		10,079,371		-			-		10,096,371
As of December 31, 2022			￦	117,000		￦	17,589,722	￦	46,640		￦	(958,790)	￦	16,794,572
As of January 1, 2023
		￦	117,000		￦	17,589,722	￦	46,640		￦	(958,790)	￦	16,794,572
Comprehensive income(loss) for the period:
Loss for the year				-			-			-			(65,689)		(65,689)
Remeasurements of net defined benefit liabilities	16			-			-			-			(27,233)		(27,233)
Gain (loss) on valuation of financial assets at FVOCI	5			-			-			(99,501)		-		(99,501)
Loss on cash flow hedge	5			-			-			(655)		-		(655)
Total comprehensive income(loss) for the year
			-			-			(100,156)		(92,922)		(193,078)
As of December 31, 2023			￦	117,000		￦	17,589,722	￦	(53,516)	￦	(1,051,712)	￦	16,601,494

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

4