Report of Foreign Issuer (6-k)

Date : 06/14/2018 @ 10:27AM
Source : Edgar (US Regulatory)
Stock : SK Telecom Co., Ltd. (SKM)
Quote : 27.48  0.55 (2.04%) @ 3:59PM

Report of Foreign Issuer (6-k)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

FOR THE MONTH OF JUNE 2018

COMMISSION FILE NUMBER 333-04906

 

 

SK Telecom Co., Ltd.

(Translation of registrant’s name into English)

 

 

Euljiro 65 (Euljiro2-ga), Jung-gu

Seoul 100-999, Korea

(Address of principal executive offices)

 

 

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

Form 20-F  ☒             Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Note:  Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Note:  Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submission to furnish a report or other document that the registration foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.     Yes  ☐    No  ☒

If “Yes” is marked, indicate below the file number assigned to the Registrant in connection with Rule 12g3-2(b): 82-                

 

 

 


QUARTERLY BUSINESS REPORT

(From January 1, 2018 to March 31, 2018)

THIS IS A SUMMARY OF THE QUARTERLY BUSINESS REPORT ORIGINALLY PREPARED IN KOREAN WHICH IS IN SUCH FORM AS REQUIRED BY THE KOREAN FINANCIAL SERVICES COMMISSION.

IN THE TRANSLATION PROCESS, SOME PARTS OF THE REPORT WERE REFORMATTED, REARRANGED OR SUMMARIZED FOR THE CONVENIENCE OF READERS.

ALL REFERENCES TO THE “COMPANY” SHALL MEAN SK TELECOM CO., LTD. AND, UNLESS THE CONTEXT OTHERWISE REQUIRES, ITS CONSOLIDATED SUBSIDIARIES. REFERENCES TO “SK TELECOM” SHALL MEAN SK TELECOM CO., LTD., BUT SHALL NOT INCLUDE ITS CONSOLIDATED SUBSIDIARIES.

UNLESS EXPRESSLY STATED OTHERWISE, ALL INFORMATION CONTAINED HEREIN IS PRESENTED ON A CONSOLIDATED BASIS IN ACCORDANCE WITH THE INTERNATIONAL FINANCIAL REPORTING STANDARDS ADOPTED FOR USE IN KOREA (“K-IFRS”) WHICH DIFFER IN CERTAIN RESPECTS FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CERTAIN OTHER COUNTRIES, INCLUDING THE UNITED STATES. WE HAVE MADE NO ATTEMPT TO IDENTIFY OR QUANTIFY THE IMPACT OF THESE DIFFERENCES.


I. COMPANY OVERVIEW

1. Company Overview

The Company’s quarterly business report for the three months ended March 31, 2018 includes the following consolidated subsidiaries:

 

Name

  

Date of

Establishment

  

Principal Business

   Total Assets as
of Dec. 31, 2017
(millions of
Won)
     Material
Subsidiary*
SK Telink Co., Ltd.    Apr. 9, 1998    Telecommunication services and satellite broadcasting services      455,685      Material
SK M&Service Co., Ltd.    Feb. 10, 2000    Online information services      113,515      Material
SK Communications Co., Ltd.    Sept. 19, 1996    Internet portal and other Internet information services      90,923      Material
SK Broadband Co., Ltd.    Sept. 5, 1997    Fixed-line telecommunication services, multimedia and IPTV services      3,802,349      Material
Home & Service Co., Ltd.    June 5, 2017    Information and telecommunication network maintenance      83,698      Material
SK Stoa Co., Ltd.    December 1, 2017    Data broadcasting and commercial retail platform services      42,898     
K-net Culture and Contents Venture Fund    Nov. 24, 2008    Investment partnership      250,747      Material
PS&Marketing Co., Ltd.    Apr. 3, 2009    Sale of telecommunication devices      506,883      Material
Service Ace Co., Ltd.    Jul. 1, 2010    Customer center management services      77,681      Material
Service Top Co., Ltd.    Jul. 1, 2010    Customer center management services      65,406     
Network O&S Co., Ltd.    Jul. 1, 2010    Network maintenance services      87,000      Material
SK Planet Co., Ltd.    Oct. 1, 2011    Telecommunication and platform services      1,534,866      Material
NSOK Co., Ltd.    Jun. 12, 2008    Security system services      94,114      Material
Iriver Ltd.    Jul. 12, 2000    Audio device manufacturing      130,878      Material
Iriver Enterprise Ltd.    Jan. 14, 2014    Management of Chinese subsidiary      36,465     
Iriver Inc.    Feb. 15, 2007    North America marketing and sales      1,498     
Iriver China Co., Ltd.    Jun 24, 2004    Electronic device manufacturing      3,401     
DongGuan Iriver Electronics Co., Ltd.    Jul. 6, 2006    Electronic device manufacturing      43     
groovers Japan Co., Ltd.    Feb. 25, 2015    Contents and information distribution      1,232     
S.M. Life Design Company Japan Inc.    June 25, 2008    Japanese merchandise business      6,366     
S.M. Mobile Communications JAPAN Inc.    May 6, 2016    Contents and information distribution      125     
SK Telecom China Holdings Co., Ltd.    Jul. 12, 2007    Investment (holding company)      43,290     
SK Global Healthcare Business Group, Ltd.    Sept. 14, 2012    Investment (SPC)      14,033     
SK Planet Japan, K. K.    Mar. 14, 2012    Digital contents sourcing services      2,945     
SKT Vietnam PTE., Ltd.    Apr. 5, 2000    Telecommunication services      4,135     

 

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Name

  

Date of

Establishment

  

Principal Business

   Total Assets as
of Dec. 31, 2017
(millions of
Won)
     Material
Subsidiary*

SK Planet Global PTE, LTD.

   Aug. 4, 2012    Digital contents sourcing services      87     

SKP GLOBAL HOLDINGS PTE, LTD.

   Aug. 10, 2012    Investment (holding company)      41,320     

SKT Americas, Inc.

   Dec. 29, 1995    Information collection and management consulting services      32,923     

SKP America LLC

   Jan. 27, 2012    Digital contents sourcing services      412,251      Material

YTK Investment Ltd.

   Jul. 1, 2010    Investment      3,169     

Atlas Investment

   Jun. 24, 2011    Investment      71,908     

SK Telecom Innovation Fund, L.P.

   Jan. 15, 2016    Investment      33,084     

SK Telecom China Fund I L.P.

   Sept. 14, 2011    Investment      19,666     

SK TechX Co., Ltd.

   Mar. 1, 2016    Telecommunication services      237,700      Material

Onestore Co., Ltd.

   Mar. 1, 2016    Contents distribution      104,891      Material

Shopkick Management Company, Inc.

   Oct. 9, 2014    Investment      338,650      Material

Shopkick, Inc.

   Jun. 1, 2009    Mileage based e-commerce application development      37,336     

11st (Thailand) Co., Ltd.

   Apr. 5, 2016    E-commerce      13,976     

HelloNature Co., Ltd.

   Jan. 5, 2012    B2C organic food e-commerce      2,124     

FSK L&S Co., Ltd.

   Oct. 20, 2016    Logistics consulting      33,175     

FSK L&S (Shanghai) Co., Ltd.

   Jul. 29, 2010    International logistics      5,327     

SK Telecom Japan Inc.

   Mar. 1, 2018    Digital contents sourcing services      10,010     

Groovers Co., Ltd.

   Feb. 15, 2000    Contents distribution      534     

 

ø Material Subsidiary means a subsidiary with total assets of Won 75 billion or more as of the end of the latest fiscal year.

 

ø On January 2, 2017, SK M&Service Co., Ltd. changed its name to SK M&Service Co., Ltd. from M&Service Co., Ltd.

 

ø On April 6, 2017, NSOK Co., Ltd. changed its name to NSOK Co., Ltd. from Neosnetworks Co., Ltd.

Changes in subsidiaries during the three months ended March 31, 2018 are set forth below.

 

Change

  

Name

  

Remarks

Additions

   FSK L&S Co., Ltd.    Newly acquired by the Company
   FSK L&S (Shanghai) Co., Ltd.    Newly acquired by the Company
   SK Telecom Japan Inc.    Newly established by the Company
   Groovers Co., Ltd.    Iriver Ltd. acquired control by acquiring additional shares during this period

 

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A. Corporate Legal Business Name: SK Telecom Co., Ltd.

 

B. Date of Incorporation: March 29, 1984

 

C. Location of Headquarters

 

  (1) Address: 65 Euljiro, Jung-gu, Seoul, Korea

 

  (2) Phone: +82-2-6100-2114

 

  (3) Website: http://www.sktelecom.com

 

D. Major Businesses

 

  (1) Wireless business

The Company provides wireless telecommunications services, characterized by its competitive strengths in handheld devices, affordable pricing, network coverage and an extensive contents library. The Company continues to maintain its reputation as the unparalleled premium network operator in the 2G, 3G and LTE markets on the basis of its technological leadership and network management technology. In addition, the Company is leading the process of global technology standardization with the aim of being the world’s first to commercialize 5G technology.

In order to strengthen its sales channels, the Company has been offering a variety of fixed-line and wireless telecommunication convergence products through its subsidiary, PS&Marketing Co., Ltd. (“PS&Marketing”). PS&Marketing provides differentiated service to customers through the establishment of new sales channels and product development. Through its subsidiaries Service Ace Co., Ltd. and Service Top Co., Ltd., the Company operates customer service centers in Seoul and provides telemarketing services. Additionally, Network O&S Co., Ltd., the Company’s subsidiary responsible for the operation of the Company’s 2G to 4G networks, provides customers with quality network services and provides the Company with technological know-how in network operations.

The Company plans to increase its profitability by strengthening its retention policy, which is the fundamental basis of competitiveness for telecommunication companies in this data-intensive era. The Company will lead the information and communication technology (“ICT”) trend by providing products through which customers can have a distinctive experience and by providing innovative services to transition to service-based competition.

In addition to the mobile network operator (“MNO”) business, the Company is building next-generation growth businesses in Internet of Things (“IoT”) solutions and artificial intelligence. In July 2016, the Company deployed the world’s first low-cost Low Power Wide Area Network designed to support IoT devices based on LoRa technology. In September 2016, the Company launched NUGU, the first intelligent virtual assistant service launched in Korea with Korean language capabilities based on advanced voice recognition technologies. The Company plans to further utilize its big data analysis capabilities to achieve growth in new business areas such as artificial intelligence.

 

  (2) Fixed-line business

SK Broadband Co., Ltd. (“SK Broadband”) is engaged in providing telecommunications, broadcasting and new media services and various other services that are permitted to be carried out by SK Broadband under relevant regulations, as well as business activities that are directly or indirectly related to providing those services. In 1999, SK Broadband launched its high-speed Internet service in Seoul, Busan, Incheon and Ulsan and currently provides such services nationwide. SK Broadband also commercialized its TV-Portal service in July 2006 and its IPTV service in January 2009 upon receipt of permit in September 2008.

 

4


  (3) Other businesses

The Company is a leading player in the Korean e-commerce industry with 11st, an e-commerce platform service that connects various sellers and purchasers through its online and mobile platforms, and “Shocking Deal,” a mobile commerce curation service. In addition, the Company has rapidly grown into a top tier player in Turkey, Malaysia and Thailand after launching open market businesses in these countries by optimizing its businesses for the respective local markets and utilizing its expertise in the e-commerce platform business. In the online-to-offline (“O2O”) area, the Company is a leading player and continues to expand its market power with OK Cashbag, Korea’s largest loyalty mileage program, SyrupWallet, which offers smart shopping services utilizing its network of business partners and information technology such as big data, and other Syrup-related services such as gifticon and 11Pay. The Company focuses on the mobile platform to connect various on- and offline commerce service platforms that provide various benefits and information at the right place and the right time to give consumers a pleasant and convenient shopping experience and retailers an integrated marketing solution to reach their target audience. The Company intends to continue its efforts to secure the market leading position in these markets.

In the location-based services business area, the Company provides real time traffic information and various local information through its T-Map Navigation service. In the digital contents business area, the Company provides high-quality digital contents in its leading mobile contents marketplace, Onestore.

The Company is also engaged in display advertising and search engine-based advertising and provides contents and other services. Display advertising provides exposure to the advertiser’s brand in the form of flash media, images or videos. Search engine-based advertising provides exposure through the search results of specific keywords entered in the NATE search engine, and is utilized mostly by small and medium-sized advertisers. The Company also derives revenue by providing contents and other services.

See “II-1. Business Overview” for more information.

 

E. Credit Ratings

 

  (1) Corporate bonds

 

Credit rating date

  

Subject of rating

   Credit rating   

Credit rating entity
(Credit rating range)

  

Rating

classification

February 19, 2016

   Corporate bond    AAA    Korea Ratings    Current rating

February 19, 2016

   Corporate bond    AAA    Korea Investors Service, Inc.    Current rating

February 19, 2016

   Corporate bond    AAA    NICE Investors Service, Co., Ltd.    Current rating

May 19, 2016

   Corporate bond    AAA    Korea Ratings    Current rating

May 20, 2016

   Corporate bond    AAA    Korea Investors Service, Inc.    Current rating

May 20, 2016

   Corporate bond    AAA    NICE Investors Service, Co., Ltd.    Current rating

April 12, 2017

   Corporate bond    AAA    Korea Ratings    Regular rating

April 12, 2017

   Corporate bond    AAA    Korea Investors Service, Inc.    Regular rating

April 12, 2017

   Corporate bond    AAA    NICE Investors Service, Co., Ltd.    Regular rating

April 12, 2017

   Corporate bond    AAA    Korea Ratings    Current rating

April 12, 2017

   Corporate bond    AAA    Korea Investors Service, Inc.    Current rating

April 12, 2017

   Corporate bond    AAA    NICE Investors Service, Co., Ltd.    Current rating

October 30, 2017

   Corporate bond    AAA    Korea Ratings    Current rating

October 30, 2017

   Corporate bond    AAA    Korea Investors Service, Inc.    Current rating

October 30, 2017

   Corporate bond    AAA    NICE Investors Service, Co., Ltd.    Current rating

February 5, 2018

   Corporate bond    AAA    Korea Ratings    Current rating

February 5, 2018

   Corporate bond    AAA    NICE Investors Service, Co., Ltd.    Current rating

February 6, 2018

   Corporate bond    AAA    Korea Investors Service, Inc.    Current rating

 

* Rating definition: “AAA” - The certainty of principal and interest payment is at the highest level with extremely low investment risk and is stable such that it will not be influenced by reasonably foreseeable changes in external factors.

 

5


  (2) Commercial paper (“CP”)

 

Credit rating date

  

Subject of rating

   Credit rating   

Credit rating entity
(Credit rating range)

  

Rating

classification

January 19, 2016

   Short-term bond    A1    Korea Ratings    Current rating

January 19, 2016

   Short-term bond    A1    Korea Investors Service, Inc.    Current rating

January 19, 2016

   Short-term bond    A1    NICE Investors Service Co., Ltd.    Current rating

April 27, 2016

   CP    A1    Korea Ratings    Current rating

April 27, 2016

   Short-term bond    A1    Korea Ratings    Current rating

May 11, 2016

   CP    A1    Korea Investors Service, Inc.    Current rating

May 11, 2016

   Short-term bond    A1    Korea Investors Service, Inc.    Current rating

May 12, 2016

   CP    A1    NICE Investors Service Co., Ltd.    Current rating

May 12, 2016

   Short-term bond    A1    NICE Investors Service Co., Ltd.    Current rating

October 26, 2016

   CP    A1    Korea Ratings    Regular rating

October 26, 2016

   Short-term bond    A1    NICE Investors Service Co., Ltd.    Regular rating

October 26, 2016

   CP    A1    NICE Investors Service Co., Ltd.    Regular rating

October 26, 2016

   Short-term bond    A1    Korea Ratings    Regular rating

November 3, 2016

   CP    A1    Korea Investors Service, Inc.    Regular rating

November 3, 2016

   Short-term bond    A1    Korea Investors Service, Inc.    Regular rating

April 12, 2017

   CP    A1    Korea Ratings    Current rating

April 12, 2017

   CP    A1    Korea Investors Service, Inc.    Current rating

April 12, 2017

   CP    A1    NICE Investors Service Co., Ltd.    Current rating

April 12, 2017

   Short-term bond    A1    Korea Ratings    Current rating

April 12, 2017

   Short-term bond    A1    Korea Investors Service, Inc.    Current rating

April 12, 2017

   Short-term bond    A1    NICE Investors Service Co., Ltd.    Current rating

October 30, 2017

   CP    A1    Korea Ratings    Regular rating

October 30, 2017

   CP    A1    Korea Investors Service, Inc.    Regular rating

October 30, 2017

   CP    A1    NICE Investors Service Co., Ltd.    Regular rating

October 30, 2017

   Short-term bond    A1    Korea Ratings    Regular rating

October 30, 2017

   Short-term bond    A1    Korea Investors Service, Inc.    Regular rating

October 30, 2017

   Short-term bond    A1    NICE Investors Service Co., Ltd.    Regular rating

 

* Rating definition : “A1” - Timely repayment capability is at the highest level with extremely low investment risk and is stable such that it will not be influenced by reasonably foreseeable changes in external factors.

 

  (3) International credit ratings

 

Date of credit rating

  

Subject of rating

   Credit rating of
securities
  

Credit rating company

  

Rating type

October 24, 2012

   Bonds denominated in U.S. dollars    A-    Fitch Inc.    Current rating

October 24, 2012

   Bonds denominated in U.S. dollars    A3    Moody’s Investors Service    Current rating

October 24, 2012

   Bonds denominated in U.S. dollars    A-    Standard & Poor’s Rating Services    Current rating

 

* On August 9, 2013, Moody’s Investors Service raised the outlook on the Company’s rating from A3 (Negative) to A3 (Stable).
* On November 4, 2015, S&P lowered the outlook on the Company’s rating from A- (Positive) to A- (Stable).

 

6


2. Company History

June 2015: Consummation of the comprehensive share exchange transaction (the “Share Exchange”) through which the Company acquired all of the shares of SK Broadband that it did not otherwise own in exchange for its treasury shares such that SK Broadband became a wholly-owned subsidiary of the Company.

April 2016: The spin-off and merger of the location-based services business and the mobile phone verification services business of SK Planet Co., Ltd.

December 2017: Comprehensive exchange of shares of SK Telink following which SK Telink became a wholly-owned subsidiary of the Company.

 

A. Location of Headquarters

 

  - 22 Dohwa-dong, Mapo-gu, Seoul (July 11, 1988)

 

  - 16-49 Hangang-ro 3-ga, Yongsan-gu, Seoul (November 19, 1991)

 

  - 267 Namdaemun-ro 5-ga, Jung-gu, Seoul (June 14, 1995)

 

  - 99 Seorin-dong, Jongro-gu, Seoul (December 20, 1999)

 

  - 65 Euljiro, Jung-gu, Seoul (December 13, 2004)

 

B. Significant Changes in Management

At the 30th General Meeting of Shareholders held on March 21, 2014, Jae Hoon Lee was elected as an independent director and Jae Hyeon Ahn was elected as an independent director and member of the audit committee of the Company’s board of directors. At the 31st General Meeting of Shareholders held on March 20, 2015, Dong Hyun Jang was elected as an inside director. At the 32nd General Meeting of Shareholders held on March 18, 2016, Dae Sik Cho was re-elected as an inside director and Dae Shick Oh was re-elected as an independent director and member of the audit committee of the Company’s board of directors. At the 33rd General Meeting of Shareholders held on March 24, 2017, Jung Ho Park was elected as an inside director and Dae Sik Cho was elected as a non-executive director. Jae Hoon Lee and Jae Hyeon Ahn were re-elected as independent directors and members of the audit committee and Jung Ho Ahn was elected as an independent director. At the 34th General Meeting of Shareholders held on March 21, 2018, Young Sang Ryu was elected as an inside director and Youngmin Yoon was elected as an independent director and member of the audit committee of the Company’s board of directors.

 

C. Change in Company Name

On January 2, 2017, SK M&Service Co., Ltd., one of the Company’s subsidiaries, changed its name to SK M&Service Co., Ltd. from M&Service Co., Ltd. in accordance with a resolution at its general meeting of shareholders on December 26, 2016.

On March 23, 2017, Neosnetworks Co., Ltd., one of the Company’s subsidiaries, changed its name to NSOK Co., Ltd., from Neosnetworks Co., Ltd., in accordance with a resolution at its general meeting of shareholders.

 

D. Mergers, Acquisitions and Restructuring

 

  (1) Acquisition of shares of PS&Marketing

On February 20, 2014, the board of directors of the Company resolved to invest an additional Won 100 billion (20 million common shares) into PS&Marketing, an affiliated company, in order to increase its mid- to long-term competitiveness in distribution. The date of investment was April 2, 2014, and the cumulative investment amount totaled Won 330 billion.

 

7


  (2) Disposition of shares of iHQ Inc.

On March 10, 2014, the Company disposed of 3,790,000 shares (its 9.4% equity share) of iHQ Inc. to rebalance its investment portfolio.

 

  (3) Acquisition of shares of NSOK Co., Ltd. (“NSOK”) (formerly, Neosnetworks Co., Ltd.)

In order to acquire a new growth engine, the Company acquired a controlling stake in NSOK, a building security company, with the purchase of 31,310 shares (a 66.7% equity interest) of NSOK on April 2, 2014. The Company acquired an additional 50,377 shares in NSOK in April 2015 through a rights offering, resulting in an increase of its ownership to 83.9%.

 

  (4) Acquisition of shares of Iriver

On August 13, 2014, the Company purchased 10,241,722 shares (a 39.3% equity interest) of Iriver Ltd. (“Iriver”) from Vogo-Rio Investment Holdings Co., Ltd. and KGF-Rio Limited in order to foster application development and smartphone accessories as part of the Company’s growth engines. The Company holds a 48.9% equity interest of Iriver by acquiring additional shares in its rights offering. The Company does not hold a majority of the voting rights of Iriver but the Company has concluded that it has effective control, as it holds significantly more voting rights than any other shareholder or any organized group of shareholders.

 

  (5) Acquisition of shares of Shopkick, Inc. (“Shopkick”)

On October 10 2014, SK Planet America LLC, a subsidiary of the Company, acquired (through its 95.2%-owned subsidiary Shopkick Management Company, Inc.) a 100.0% ownership interest in Shopkick, a developer of a shopping app for mobile devices that provides benefits to customers for visiting stores, in order to penetrate the mobile commerce market in the United States. In the first half of 2016, SK Planet America LLC acquired all remaining shares of Shopkick Management Company, Inc.

 

  (6) Disposition of Shenzen E-Eye shares

In 2014, the Company entered into an agreement to dispose of its equity interest in Shenzen E-eye in order to focus its business portfolio on high-growth business areas in the Chinese ICT market. The sale was completed on March 23, 2015.

 

  (7) Disposition of a portion of KEB Hana Card shares

On April 3, 2015, the Company sold 27,725,264 shares (10.4% out of the 25.4% equity interest the Company held prior to the sale) of KEB Hana Card Co., Ltd. to Hana Financial Group in cash. With the proceeds of such sale (Won 180 billion), the Company acquired equity interests in Hana Financial Group on April 17, 2015 through participation in a rights offering by Hana Financial Group. The Company plans to maintain its strategic alliance and pursue opportunities to create synergies with, Hana Financial Group.

 

  (8) SK Broadband - Comprehensive Share Exchange

On March 20, 2015, the Company’s board of directors resolved to approve the Share Exchange.

 

- Share Exchange ratio: Shareholders of one common share of SK Broadband were allotted 0.0168936 common shares of SK Telecom

 

- Shares exchanged: 2,471,883 registered common shares of SK Telecom

 

- Date of Share Exchange agreement: March 23, 2015

 

- Record date: April 6, 2015

 

- Announcement date for the proceeding of the Share Exchange as a small-scale share swap: April 6, 2015

 

- Meeting of board of directors for approval of the Share Exchange: May 6, 2015

 

- Date of the Share Exchange: June 9, 2015

 

8


  (9) Establishment of Entrix Co., Ltd.

In July 2015, SK Planet spun off its cloud streaming division and established Entrix Co., Ltd. The Company exchanged 1,300,000 shares of SK Planet for 1,300,000 shares of Entrix at the time of the spin-off and later acquired an additional 2,857,000 shares by participating in the recapitalization.

 

  (10) Additional capital raise by NanoEnTek Inc.

In 2015, the Company acquired 1,090,155 shares through the additional capital raise by NanoEnTek.

 

  (11) Reclassification of Packet One Networks’ accounts

In 2015, the Company reclassified its investments in Packet One from investments in associates and joint ventures to assets classified as held for sale as the Company no longer had significant control over Packet One. The difference between the book value and the fair value of Won 37.4 billion at the time of reclassification was recognized as impairment loss.

 

  (12) Acquisition of shares of SK Communications Co., Ltd. (“SK Communications”)

On October 1, 2015, the Company became the largest shareholder of SK Communications with a 64.54% equity interest through dividends in kind from SK Planet of 26,523,815 shares and the purchase of 1,506,130 shares over-the-counter.

 

  (13) Acquisition of shares of CJ HelloVision Co., Ltd. (“CJ HelloVision”)

On November 2, 2015, the Company’s board of directors resolved to approve the acquisition of CJ HelloVision’s shares from CJ O Shopping Co., Ltd. (“CJ O Shopping”) and on the same day, entered into a share purchase agreement with CJ O Shopping. In addition, on November 2, 2015, SK Broadband’s board of directors resolved to approve the merger of SK Broadband with CJ HelloVision and on the same day, entered into a merger agreement with CJ HelloVision and the closing of the merger was conditioned upon receipt of regulatory approval from relevant authorities. On July 25, 2016, the Company notified CJ O Shopping of the termination of the share purchase agreement and SK Broadband notified CJ HelloVision of the termination of the merger agreement, as the Korea Fair Trade Commission on July 18, 2016 denied approval of the proposed merger, which was a closing condition to the consummation of the merger.

 

  (14) Tender offer of shares of CJ HelloVision

From November 2, 2015 to November 23, 2015, the Company purchased 6,671,933 shares of CJ Hellovision in a tender offer for up to 10,000,000 shares, paying Won 12,000 per share. Through this tender offer, the Company acquired an 8.61% equity interest in CJ HelloVision.

 

  (15) Establishment of SK TechX Co., Ltd. and Onestore

In March 2016, SK Planet spun off its platform business and T Store business and established SK TechX and Onestore. The Company exchanged 12,323,905 shares of SK Planet for 6,323,905 shares of SK TechX and 6,000,000 shares of Onestore at the time of the spin-off. The Company later acquired an additional 4,409,600 shares of Onestore at a purchase price of Won 22 billion by participating in the follow-on rights offering. The Company did not participate in the subsequent follow-on rights offering and as of March 31, 2018, the Company had a 65.5% interest in Onestore.

 

  (16) Spin-off and merger of SK Planet’s location-based services business and mobile phone verification services business

Through the merger of SK Planet’s location-based services business and mobile phone verification services business into SK Telecom, the Company seeks to provide a solid base for continued growth, especially in the next generation platform business, and SK Planet plans to further concentrate its resources on its commerce business. The spin-off and merger was effective as of April 5, 2016 and was registered as of April 7, 2016. SK Planet is a wholly-owned subsidiary of the Company, and as the Company did not issue any new shares in connection with the merger, there was no change in the share ownership of the Company.

 

9


  (17) Establishment of Hana-SK Fintech Corporation

In order to provide an everyday finance platform, the Company entered into a joint venture agreement with Hana Financial Group, in accordance with the resolution of the Company’s board of directors on July 28, 2016. Combining the Company’s leading mobile technology and big data analysis capabilities with Hana Financial Group’s financial service, Hana-SK Fintech Corporation plans to provide innovative mobile financial services such as mobile asset management, easy payment and overseas wire transfer services. SK Telecom holds a 49% equity stake in the joint venture, and Hana Financial Group holds the remaining 51%. Service of the everyday finance platform Finnq officially launched in the third quarter of 2017.

 

  (18) Capital contribution of shares of NSOK for new shares of SK Telink Co., Ltd. (“SK Telink”)

On October 25, 2016, the Company made a capital contribution of all shares of NSOK owned by the Company to SK Telink in exchange for 219,967 newly issued shares of SK Telink, which resulted in an increase of the Company’s equity interest in SK Telink to 85.86%.

 

  (19) Acquisition of shares of SM Mobile Communications

In October 2016, the Company transferred the media platform businesses Hotzil and 5Ducks to SM Mobile Communications in exchange for 1,200,000 shares of SM Mobile Communications. As a result, the Company owned a 46.2% equity interest in SM Mobile Communications as of March 31, 2018.

 

  (20) Exchange of shares of SK Communications

On November 24, 2016, the Company’s board of directors resolved to approve the payment of cash consideration in lieu of the issuance of shares of the Company in a comprehensive exchange of shares of SK Communications. The amount of cash consideration was based on a share exchange ratio of one common share of the Company to 0.0125970 common share of SK Communications. In February 2017, SK Communications became a wholly-owned subsidiary of the Company.

 

  (21) Acquisition of shares of Iriver Ltd.

The Company acquired 4,699,248 shares of its subsidiary Iriver Ltd. at a purchase price of Won 5,320 in connection with a capital contribution. The Company’s equity interest in Iriver Ltd. following the acquisition is 45.9%. See “Report on Important Business Matters (Decision on Capital Increase)” filed on July 17, 2017 by Iriver Ltd. for more information.

 

  (22) Acquisition of newly issued shares of SK China Company Limited (“SK China”)

On July 28, 2017, the Company acquired newly issued shares of SK China to find investment opportunities in ICT and other promising areas of growth in China. In exchange for newly issued shares of SK China, the Company contributed its full equity interest in each of SKY Property Management Limited (“SKY”) and SK Industrial Development China Co., Ltd. (“SK IDC”) as well as cash, equal to the following amounts: 1) SKY stock: USD 276,443,440.64, 2) SK IDC stock: USD 108,072,007.67 and 3) Cash: USD 100,000,000.00. As a result of the acquisition, the Company holds 10,928,921 shares and a 27.27% of equity interest in SK China. See “Report on Decision on Acquisition of SK China Shares” filed by the Company on July 28, 2017 for more information about this transaction.

 

  (23) Exchange of shares of SK Telink

On September 28, 2017, the Company disclosed a resolution approving the payment of cash consideration in lieu of the issuance of shares of SK Telecom in an exchange of shares of SK Telink. The amount of cash consideration was based on a share exchange ratio of 1:1.0687714. The exchange was completed on December 14, 2017, upon which exchange SK Telink became a wholly-owned subsidiary of the Company.

 

10


  (24) Acquisition of shares of FSK L&S Co., Ltd.

On February 6, 2016, the Company acquired 2,415,750 shares of FSK L&S Co., Ltd. at a purchase price of Won 18 billion from SK Holdings to utilize its logistics sharing infrastructure with its counterparties and pursue new business opportunities. As a result of the acquisition, the Company had a 60% equity interest in FSK L&S Co., Ltd.

[SK Broadband]

 

  (1) Share Exchange

On March 20, 2015, the board of directors of SK Broadband resolved to approve the comprehensive exchange of shares of SK Broadband for shares of the Company. The share exchange was approved at the extraordinary meeting of shareholders held on May 6, 2015. Subsequent to the share exchange, the Company became the parent company of SK Broadband with 100% ownership and remained a listed corporation on the KRX KOSPI Market, and SK Broadband became a wholly-owned subsidiary of the Company and was delisted from the KRX KOSDAQ Market. There was no change in the share ownership interest of the Company’s existing shareholders or the Company’s management in connection with the Share Exchange.

 

  (2) Merger among Subsidiaries and Affiliates

On July 29, 2015, the board of directors of SK Broadband approved the acquisition of SK Planet’s Hoppin business through a spin-off and subsequent merger transaction pursuant to Article 530-2 of the Korean Commercial Code, with both SK Broadband and SK Planet remaining as existing companies. The spin-off and subsequent merger were effective as of September 1, 2015, and on the same day, SK Broadband issued 2,501,125 new common shares resulting from the merger, allotting 0.0349186 common shares of SK Broadband per one common share of SK Planet to SK Telecom, SK Planet’s sole shareholder.

 

  (3) Merger with CJ HelloVision

On November 2, 2015, SK Broadband’s board of directors resolved to approve the merger of SK Broadband with CJ HelloVision such that CJ HelloVision would be the surviving entity and SK Broadband would be the non-surviving entity. The largest shareholder of the merged entity would be SK Telecom with an equity interest of 78.35%. On February 26, 2016, the entry into the merger agreement was resolved as proposed by SK Broadband’s shareholders.

On July 25, 2016, SK Broadband notified CJ HelloVision of the termination of the merger agreement, as the Korea Fair Trade Commission on July 18, 2016 denied approval of the proposed merger, which was a closing condition to the consummation of the merger. On July 27, 2016, SK Broadband’s board of directors resolved to terminate the merger agreement as proposed. Subsequently, the merger agreement is no longer effective and all procedures related to the merger, including the issuance of new shares, were terminated.

 

  (4) Establishment of a subsidiary

On May 23, 2017, SK Broadband’s board of directors resolved to approve the establishment of a subsidiary. On June 5, 2017, SK Broadband established Home&Service Co., Ltd. (“Home&Service”), a subsidiary responsible for the management of customer service operations, in order to enhance SK Broadband’s competitiveness by strengthening its customer service and strategically developing its home Value Delivery channel and to create quality jobs. Home&Service was incorporated by SK Broadband under the Korean Commercial Code. The subsidiary was capitalized at Won 46 billion (9,200,000 shares with par value of Won 5,000 per share), and SK Broadband holds a 100% equity interest. The Korea Fair Trade Commission approved the subsidiary’s incorporation as an SK affiliate on July 1, 2017, from which arises a duty to report to the Fair Trade Commission.

 

  (5) Spin-off

On August 16, 2017, SK Broadband’s board of directors resolved to approve the spin-off of its T-commerce subsidiary to enhance the competitiveness and managerial efficiency of its T-commerce business (data broadcasting and commercial retail platform service through TV home shopping channels) through a spin-off and subsequent establishment of a subsidiary pursuant to Article 530-2 and 530-12 of the Korean Commercial Code, with both companies from the simple vertical spin-off remaining as existing companies. The spin-off was effective as of December 1, 2017, and the subsidiary was capitalized at Won 15 billion (3,000,000 shares with par value of Won 5,000 per share), with SK Broadband holding a 100% equity interest. The Korea Fair Trade Commission approved the subsidiary’s incorporation as an SK affiliate on January 1, 2018, from which arises a duty to report to the Fair Trade Commission.

 

11


[SK Planet]

On May 29, 2015, the board of directors of SK Planet resolved to spin off its cloud streaming division on July 1, 2015 in order to strengthen its business capabilities and expand overseas. The spin-off ratio was 0.9821740 for the surviving company to 0.0178260 for the newly-established company, and the capital reduction ratio was 1.7825968%.

On July 29, 2015, the board of directors of SK Planet resolved to spin off its Hoppin business, which was merged into SK Broadband on September 1, 2015, in order to unify capabilities within the business and maximize synergies to improve its competitive power in the Korean and international mobile media market. SK Planet issued 2,501,125 new common shares in connection with this transaction, and the merger ratio between SK Planet and SK Broadband was 0.0349186:1.

On December 29, 2015, the board of directors of SK Planet resolved to merge Commerce Planet Co., Ltd., its wholly-owned subsidiary, into SK Planet to generate synergies by uniting capabilities to promote its commerce business. The merger was effective as of February 1, 2016, and SK Planet did not issue any new shares in connection with the merger.

Effective as of March 1, 2016, SK Planet spun off its platform business and T Store business in order to enhance the competitiveness of each business for future growth.

Effective as of April 5, 2016, SK Planet spun off its location-based services business and mobile phone verification services business and merged them into the Company in order to further concentrate its resources on its commerce business.

On May 29, 2017, the board of directors of SK Planet resolved to transfer the operations and assets related to its BENEPIA business for Won 7.5 billion to SK M&Service Co., Ltd. as of July 1, 2017.

On July 17, 2017, the board of directors of SK Planet resolved to (1) spin-off SK Planet’s advertising agency business as a newly established company, SM Contents & Communications, in order to strengthen the competitiveness of the business for future growth, which spin-off was effective as of October 1, 2017 and (2) sell 100% of its shares of SM Contents & Communications to SM Culture & Contents Co., Ltd. to further concentrate business capabilities and efficiently allocate management resources. The closing date of the sale transaction was October 24, 2017.

[SK Telink]

 

  (1) Acquisition of shares of NSOK

In accordance with the resolution of its board of directors on September 22, 2016, SK Telink received a capital contribution of 408,435 shares (an 83.9% equity interest) of NSOK owned by SK Telecom. On October 25, 2016, SK Telink acquired the remaining 78,200 outstanding shares (a 16.1% equity interest) of NSOK, pursuant to which NSOK became a wholly-owned subsidiary of SK Telink.

In accordance with the resolution of its board of directors on April 12, 2017, SK Telink acquired 525,824 additional shares of NSOK pursuant to a rights offering for an aggregate amount of Won 40.0 billion (or Won 76,071 per share), resulting in SK Telink’s ownership of 1,012,459 shares (a 100% equity interest) of NSOK.

 

  (2) Comprehensive exchange of shares

On September 28, 2017, SK Telink’s board of directors approved a comprehensive exchange of shares with SK Telecom, pursuant to which SK Telecom would acquire SK Telink’s remaining outstanding shares for cash consideration in lieu of issuance of shares of SK Telecom. The share exchange agreement was subsequently approved at the extraordinary general meeting of shareholders held on November 9, 2017.

 

12


Following the exchange, there were no changes to SK Telecom’s share ownership interest level or to management structure, and SK Telecom and SK Telink will remain as corporate entities. SK Telink became a wholly-owned subsidiary of SK Telecom and remains as an unlisted corporation, while SK Telecom remains as a listed corporation.

ø See “Report on Cash Consideration for Shares of SK Telink Co., Ltd.” filed on September 29, 2017 for more information about this transaction.

[SK Communications]

 

  (1) Disposition of the Cyworld service

Pursuant to the resolution of its board of directors on March 6, 2014, SK Communications sold its Cyworld service and certain related assets to Cyworld Co., Ltd. for Won 2.8 billion on April 8, 2014.

 

  (2) Change in the largest shareholder

On September 24, 2015, SK Telecom and SK Planet entered into a share transfer agreement to transfer all of the shares of SK Communications held by SK Planet to SK Telecom. The agreement became effective on October 1, 2015, making SK Telecom the largest shareholder of SK Communications.

 

  (3) Comprehensive share exchange

Pursuant to the resolution of its board of directors on November 24, 2016, SK Communications entered into a comprehensive share exchange agreement with SK Telecom on November 25, 2016. Upon the consummation of the share exchange on February 7, 2017, SK Communications became a wholly-owned subsidiary of SK Telecom.

[PS&Marketing]

On February 20, 2014, the board of directors of PS&Marketing resolved to acquire the retail distribution business, including related assets, liabilities, contracts and human capital of the information technology and mobile wing of SK Networks. On the same day, the board of directors of PS&Marketing also resolved to acquire retail stores, including their assets and liabilities, of LCNC Co., Ltd (“LCNC”). The acquisitions were completed on April 30, 2014 at a purchase price of Won 124.5 billion for the assets acquired from SK Networks and a purchase price of Won 10 billion for the assets acquired from LCNC.

[NSOK]

On March 31, 2015, NSOK acquired the unmanned electronic security business of Joeun Safe to expand its unmanned security business The acquisition cost, which had been reported on January 5, 2015 as Won 19.4 billion, was subject to adjustment depending on the customer transfer rate. The final acquisition cost was determined to be Won 16.9 billion.

[Iriver]

 

  (1) Merger of Iriver CS Co., Ltd. (“Iriver CS”)

Pursuant to the resolution of its board of directors on November 18, 2014, Iriver decided to merge with Iriver CS, its wholly-owned subsidiary, with Iriver as the surviving entity. The merger was completed based on the merger ratio of 1:0 with no capital increase. The merger and merger registration were completed on January 31, 2015 and February 2, 2015, respectively.

 

13


  (2) Acquisition of shares of S.M. Life Design Company Japan Inc.

Pursuant to the resolution of its board of directors on July 17, 2017, Iriver approved a contract to acquire a total of 1,000,000 shares of S.M. Life Design Company Japan Inc. (a 100% equity interest) from S.M. Entertainment Japan Co., Ltd. with the purposes of entering foreign markets and maximizing business synergy. Iriver acquired control of S.M. Life Design Company Japan Inc. upon its completion of payment for the shares on September 1, 2017.

 

  (3) Merger of S.M. Mobile Communications JAPAN Inc.

Pursuant to the resolution of its board of directors on July 17, 2017, Iriver decided to merge with S.M. Mobile Communications JAPAN Inc., a contents and information distribution company, with the purpose of reinforcing its contents based device business and enhancing managerial efficiency. As of October 1, 2017, Iriver merged S.M. Mobile Communications JAPAN Inc. into it with a merger ratio of 1:1.6041745, based on which Iriver issued 4,170,852 new common shares.

 

  (4) Acquisition of shares of Groovers Co., Ltd.

On February 23, 2018 the Company acquired 414,000 additional shares (a 55.8% equity interest) of Groovers Co., Ltd., which provides high quality sound services such as FLAC (Free Lossless Audio Codec), MQS (Mastering Quality Sound) and DSD (Direct Stream Digital) from NHN Bugs Corp. and individuals. As a result, the Company acquired control of Groovers Co., Ltd. as its equity interest therein increased from 44.2% to 100%.

 

  (5) Acquisition of important assets (Supply and distribution rights for music and digital contents)

On February 28, 2018, the Company entered into an agreement with S.M. Entertainment Co., Ltd. to acquire supply and distribution rights for music and digital contents of S.M. Entertainment Co., Ltd., JYP Entertainment Corporation and Big Hit Entertainment. Through this arrangement, the Company plans to increase sales by entering the music and sound recording industries and to create synergies through strategic alliances.

[SK M&Service]

 

  (1) Acquisition of SK Planet’s BENEPIA business

Pursuant to the resolutions of its board of directors and its extraordinary shareholders meeting held on May 29, 2017, SK M&Service decided to acquire SK Planet’s BENEPIA business (including agency service for the Flexible Benefit Plan and related tangible and intangible assets, goodwill, systems, etc.) for Won 7.5 billion on July 1, 2017.

E. Other Important Matters related to Management Activities

[SK Telecom]

 

  (1) Issuance of bonds

On May 14, 2014, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 50 billion (with an annual interest rate of 3.301% and a maturity date of May 14, 2019), Won 150 billion (with an annual interest rate of 3.637% and a maturity date of May 14, 2024), Won 50 billion (with embedded options, an annual interest rate of 4.725% and a maturity date of May 14, 2029), and Won 50 billion (with embedded options, an annual interest rate of 4.72% and a maturity date of May 14, 2029).

On October 28, 2014, the Company issued three tranches of fixed-rate unsecured bonds in the principal amounts of Won 160 billion (with an annual interest rate of 2.53% and a maturity date of October 28, 2019), Won 150 billion (with an annual interest rate of 2.66% and a maturity date of October 28, 2021), and Won 190 billion (with an annual interest rate of 2.82% and a maturity date of October 28, 2024).

 

14


On February 26, 2015, the Company issued three tranches of fixed-rate unsecured bonds in the principal amounts of Won 100 billion (with an annual interest rate of 2.40% and a maturity date of February 26, 2022, Won 150 billion (with an annual interest rate of 2.49% and a maturity date of February 26, 2025), and Won 50 billion (with an annual interest rate of 2.61% and a maturity date of February 26, 2030).

On July 17, 2015, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 90 billion (with an annual interest rate of 1.89% and a maturity date of July 17, 2018), Won 70 billion (with an annual interest rate of 2.66% and a maturity date of July 17, 2025), Won 90 billion (with an annual interest rate of 2.82% and a maturity date of July 17, 2030), and Won 50 billion (with an annual interest rate of 3.40% and a maturity date of July 17, 2030).

On November 30, 2015, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 80 billion (with an annual interest rate of 2.073% and a maturity date of November 30, 2018), Won 100 billion (with an annual interest rate of 2.550% and a maturity date of November 30, 2025), Won 70 billion (with an annual interest rate of 2.749% and a maturity date of November 30, 2035), and Won 50 billion (with embedded options, an annual interest rate of 3.100% and a maturity date of November 30, 2030).

On March 4, 2016, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 70 billion (with an annual interest rate of 1.651% and a maturity date of March 4, 2019), Won 100 billion (with an annual interest rate of 1.802% and a maturity date of March 4, 2021), Won 90 billion (with an annual interest rate of 2.077% and a maturity date of March 4, 2026), and Won 80 billion (with an annual interest rate of 2.243% and a maturity date of March 4, 2036).

On June 3, 2016, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 50 billion (with an annual interest rate of 1.621% and a maturity date of June 3, 2019), Won 50 billion (with an annual interest rate of 1.709% and a maturity date of June 3, 2021), Won 120 billion (with an annual interest rate of 1.973% and a maturity date of June 3, 2026), and Won 50 billion (with an annual interest rate of 2.172% and a maturity date of June 3, 2031).

On April 25, 2017, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 60 billion (with an annual interest rate of 1.925% and a maturity date of April 25, 2020), Won 120 billion (with an annual interest rate of 2.168% and a maturity date of April 25, 2022), Won 100 billion (with an annual interest rate of 2.552% and a maturity date of April 25, 2027), and Won 90 billion (with an annual interest rate of 2.649% and a maturity date of April 25, 2032).

On November 10, 2017, the Company issued three tranches of fixed-rate unsecured bonds in the principal amounts of Won 100 billion (with an annual interest rate of 2.388% and a maturity date of November 10, 2020), Won 80 billion (with an annual interest rate of 2.634% and a maturity date of November 10, 2022), and Won 100 billion (with an annual interest rate of 2.840% and a maturity date of November 10, 2027).

On February 20, 2018, the Company issued four tranches of fixed-rate unsecured bonds in the principal amounts of Won 110 billion (with an annual interest rate of 2.572% and a maturity date of February 20, 2021), Won 100 billion (with an annual interest rate of 2.806% and a maturity date of February 20, 2023), Won 200 billion (with an annual interest rate of 3.004% and a maturity date of February 20, 2028) and Won 90 billion (with an annual interest rate of 3.016% and a maturity date of February 20, 2038).

 

  (2) Issuance of hybrid securities

In June 2013, the Company issued Won 400 billion principal amount of hybrid securities in the form of unguaranteed subordinated bonds with an annual interest rate of 4.21%, which is based on the five-year Korean government bond yield plus a spread. An additional spread of 0.25% is payable beginning ten years from the date of issuance and an additional spread of 0.75% is payable after 25 years from the date of issuance. The Company classified the hybrid securities as equity, as there is no contractual obligation to deliver financial assets to the bondholders. The maturity date of the hybrid securities is June 7, 2073, which can be extended by the Company without any notice or announcement.

 

15


[SK Broadband]

SK Broadband acquired subscribership of regional cable and other service providers on several different occasions. Such acquisitions were intended to secure a stable subscriber base for its broadband Internet service and, at the same time, increase the service coverage area. Because such acquisitions were conducted on a relatively small scale and involved the purchase of subscribership, SK Broadband did not believe that such acquisitions rose to the level of purchasing an entire business line from another company or were likely to have a material impact on its business, and therefore decided that such acquisitions did not require resolutions of its shareholders.

3. Total Number of Shares

 

A. Total Number of Shares

 

(As of March 31, 2018)      (Unit: in shares)  

Classification

   Share type      Remarks  
   Common shares      Preferred shares      Total     

I. Total number of authorized shares

     220,000,000        —          220,000,000        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

II. Total number of shares issued to date

     89,278,946        —          89,278,946        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

III. Total number of shares retired to date

     8,533,235        —          8,533,235        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

a. reduction of capital

     —          —          —          —    

b. retirement with profit

     8,533,235        —          8,533,235        —    

c. redemption of redeemable shares

     —          —          —          —    

d. others

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

IV. Total number of shares (II-III)

     80,745,711        —          80,745,711        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

V. Number of treasury shares

     10,136,551        —          10,136,551        —    

VI. Number of shares outstanding (IV-V)

     70,609,160        —          70,609,160        —    

 

16


B. Treasury Shares

 

  (1) Acquisitions and dispositions of treasury shares

 

(As of March 31, 2018)                           (Unit: in shares)  

Acquisition methods

   

Type of

shares

  At the
beginning of
period
    Changes     At the end of
period
 
      Acquired
(+)
    Disposed
(-)
    Retired
(-)
   

Acquisition pursuant to the Financial Investment Services and Capital Markets Act of Korea (“FSCMA”)

    
Direct
acquisition
 
 
    

Direct
acquisition

from market

 
 

 

  Common shares     10,136,551       —         —         —         10,136,551  
       

Preferred shares

    —         —         —         —         —    
       

Direct over-
the-counter
acquisition
 
 
 
  Common shares     —         —         —         —         —    
       

Preferred shares

    —         —         —         —         —    
        Tender offer     Common shares     —         —         —         —         —    
       

Preferred shares

    —         —         —         —         —    
        Sub-total     Common shares     10,136,551       —         —         —         10,136,551  
       

Preferred shares

    —         —         —         —         —    
    




Acquisition
through
trust
and
other
agreements
 
 
 
 
 
 
    

Held by

trustee

 

 

  Common shares     —         —         —         —         —    
       

Preferred shares

    —         —         —         —         —    
     

 

 

 

 

Held in

actual

stock

 

 

 

 

 

 

  Common shares     —         —         —         —         —    
       

Preferred shares

    —         —         —         —         —    
        Sub-total     Common shares     —         —         —         —         —    
       

Preferred shares

    —         —         —         —         —    

Other acquisition

 

  Common shares     —         —         —         —         —    
       

Preferred shares

    —         —         —         —         —    
         

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

 

  Common shares     10,136,551       —         —         —         10,136,551  
         

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
 

Preferred shares

    —         —         —         —         —    
         

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

4. Status of Voting Rights

 

(As of March 31, 2018)           (Unit: in shares)  

Classification

     Number of shares      Remarks  

Total shares (A)

     Common share        80,745,711        —    
     Preferred share        —          —    

Number of shares without voting rights (B)

     Common share        10,136,551        Treasury shares  
     Preferred share        —          —    

Shares without voting rights pursuant to the Company’s articles of incorporation (the “Articles of Incorporation”) (C)

     Common share        —          —    
     Preferred share        —          —    

Shares with restricted voting rights pursuant to Korean law (D)

     Common share        —          —    
     Preferred share        —          —    

Shares with reestablished voting rights (E)

     Common share        —          —    
     Preferred share        —          —    

The number of shares with exercisable voting right s (F = A - B - C - D + E)

     Common share        70,609,160        —    
     Preferred share        —          —    

 

17


5. Dividends and Others

 

A. Dividends

 

  (1) Distribution of cash dividends was approved during the 31st General Meeting of Shareholders held on March 20, 2015.

 

    Distribution of cash dividends per share of Won 8,400 (exclusive of an interim dividend of Won 1,000) was approved.

 

  (2) Distribution of interim dividends of Won 1,000 was approved during the 378th Board of Directors’ Meeting on July 23, 2015.

 

  (3) Distribution of cash dividends was approved during the 32nd General Meeting of Shareholders held on March 18, 2016.

 

    Distribution of cash dividends per share of Won 9,000 (exclusive of an interim dividend of Won 1,000) was approved.

 

  (4) Distribution of interim dividends of Won 1,000 was approved during the 393rd Board of Directors’ Meeting on July 28, 2016.

 

  (5) Distribution of cash dividends was approved during the 33rd General Meeting of Shareholders held on March 24, 2017.

 

    Distribution of cash dividends per share of Won 9,000 (exclusive of an interim dividend of Won 1,000) was approved.

 

  (6) Distribution of interim dividends of Won 1,000 was approved during the 404 th Board of Directors’ Meeting on July 28, 2017.

 

  (7) Distribution of cash dividends was approved during the 34th General Meeting of Shareholders held on March 21, 2018.

 

    Distribution of cash dividends per share of Won 9,000 (exclusive of an interim dividend of Won 1,000) was approved.

 

18


B. Dividends for the Last Three Fiscal Years

 

     (Unit: in millions of Won, except per share values and percentages)  

Classification

     As of and for the three
months ended
March 31, 2018
     As of and for the
year ended
December 31, 2017
     As of and for the
year ended
December 31, 2016
 

Par value per share (Won)

 

     500        500        500  

(Consolidated) Net income

 

     694,959        2,599,829        1,675,967  

Net income per share (Won)

 

     9,842        36,582        23,497  
     

 

 

    

 

 

    

 

 

 

Total cash dividend

 

     —          706,091        706,091  
     

 

 

    

 

 

    

 

 

 

Total stock dividends

 

     —          —          —    
     

 

 

    

 

 

    

 

 

 

(Consolidated)

Percentage of cash dividend to available income (%)

 

 

     —          27.2        42.1  

Cash dividend yield ratio (%)

     —          —          3.6        4.3  
     —          —          —          —    

Stock dividend yield ratio (%)

     —          —          —          —    
     —          —          —          —    

Cash dividend per share (Won)

     —          —          10,000        10,000  
     —          —          —          —    

Stock dividend per share (share)

     —          —          —          —    
     —          —          —          —    

 

* Net income per share means basic net income per share. The cash dividend per share amounts include the respective interim cash dividend per share amounts.

 

19


II. BUSINESS

1. Business Overview

Each company in the consolidated entity is a separate legal entity providing independent services and products. The business is primarily separated into (1) the wireless business consisting of cellular voice, wireless data and wireless Internet services, (2) the fixed-line business consisting of fixed-line telephone, high speed Internet, data and network lease services, among others, and (3) other businesses consisting of platform services and Internet portal services, among others.

Set forth below is a summary business description of material consolidated subsidiaries.

 

Classification

  

Company name

  

Description of business

Wireless

   SK Telecom Co., Ltd.   

Wireless voice and data telecommunications services via digital wireless networks

 

   PS&Marketing Co., Ltd.   

Sale of fixed-line and wireless telecommunications products through wholesale, retail and online distribution channels

 

   Network O&S Co., Ltd.   

Maintenance of switching stations

 

   Service Ace Co., Ltd    Management and operation of customer centers

Fixed-line

   SK Broadband Co., Ltd.   

High-speed Internet, TV, telephone, commercial data and other fixed-line services and management of the transmission system for online digital contents

 

Various media-related services, such as channel management, including video on demand, and mobile IPTV services

 

   SK Telink Co., Ltd.   

International wireless direct-dial “00700” services, voice services using Internet protocol and Mobile Virtual Network Operator (“MVNO”) business

 

   Home & Service Co., Ltd.   

System maintenance of high-speed Internet, IPTV and fixed-line services

 

Other business

   SK Planet Co., Ltd.   

Various platform services such as 11st, Syrup, OK Cashbag in the commerce area

 

   SK TechX Co., Ltd.   

Develop and supply system software for SK Telecom

 

   Onestore Co., Ltd.   

Operate app store

 

   SK Communications Co., Ltd.   

Integrated portal services through NATE and instant messaging services through NATE-ON

 

   SK M&Service Co., Ltd.   

System software development, distribution and technical support services and other online information services

 

   Iriver Ltd.   

Audio and video device manufacturing

 

   NSOK Co., Ltd.   

Security system services

 

   SK Planet America LLC   

System software development, distribution and investments

 

   Shopkick Management Company, Inc.   

System software development, distribution and investments

 

  

 

Atlas Investment

  

 

Investments

 

 

20


[Wireless Business]

 

A. Industry Characteristics

The telecommunications services market can be categorized into telecommunications services (such as fixed-line, wireless, leased line and value-added services) and broadcasting and telecommunications convergence services. Pursuant to the Telecommunications Business Act, the telecommunications services market can be further classified into basic telecommunications (fixed-line and wireless telecommunications), special category telecommunications (resale of telecommunications equipment, facilities and services) and value-added telecommunications (internet connection and management, media contents and others). The size of the domestic telecommunications services market is determined based on various factors specific to Korea, including size of population that uses telecommunication services and telecommunications expenditures per capita. While it is possible for Korean telecommunication service providers to provide services abroad through acquisitions or otherwise, foreign telecommunication services markets have their own characteristics depending, among others, on the regulatory environment and demand for telecommunication services.

The Korean mobile communication market is considered to have reached its maturation stage with more than a 100% penetration rate. However, the Korean mobile communications market continues to improve in the quality of services with the help of advances in network-related technology and the development of highly advanced LTE-A, LTE and 3G smartphones which enable the provision of convergence services for multimedia contents, mobile commerce, telematics, new media and other related services. In addition, through the commercialization of LTE network in July 2011 and LTE-A network in June 2013, B2B businesses, such as the corporate “connected workforce” business which can directly contribute to an enhancement in productivity, are expected to grow rapidly.

In the first half of 2014, wideband LTE-A service was commercialized and on December 29, 2014, tri-band LTE-A service with a maximum speed of 300 Mbps was also commercialized. Since June 2017, through the commercialization of 5band CA technology, which is considered the final stage of LTE development, the Company has provided 4.5G service at the speed of 700Mbps to 900Mbps. Since early 2018, the Company was the first to start providing LTE service with a speed of up to 1 Gbps. Such achievements were the building blocks towards the Company’s LTE penetration reaching 77.1% as of March 31, 2018.

 

B. Growth Potential

 

          (Unit: in 1,000 persons)  

Classification

   As of March 31,
2018
     As of December 31,  
      2017      2016  

Number of subscribers

   SK Telecom      26,880        26,753        26,428  
  

Others (KT, LGU+)

     28,847        28,375        27,018  
  

MVNO

     7,668        7,523        6,841  
  

Total

     63,395        62,651        60,287  

 

* Source: Wireless subscriber data from the Ministry of Science and ICT (“MSIT”) as of March 31, 2018.

 

C. Domestic and Overseas Market Conditions

The Korean mobile communication market includes the entire population of Korea with mobile communication service needs, and almost every Korean is considered a potential user. Sales revenue related to data services is expected to increase due to the increasing popularity of smartphones and high-speed wireless networks. There is also a growing importance to the business-to-business segment, which creates added value by selling and developing various solutions. Seasonal and economic fluctuations have much less impact on the Korean mobile communication market compared to other industries.

Set forth below is the historical market share of the Company.

 

     (Unit: in percentages)  

Classification

   As of March 31,
2018
     As of December 31,  
      2017      2016      2015  

Mobile communication services

     47.87        48.20        49.09        49.41  

 

* Source: MSIT website and each Korean telecommunications company’s respective earnings releases (including MVNOs).

 

21


D. Business Overview and Competitive Strengths

The Company is seeking to transform itself from a telecommunications service provider into a comprehensive ICT service provider. It has continued to innovate the scope of its services and achieved strong growth in subscribers amid fierce competition and rate cuts. As a result, for the first quarter of 2018, the Company recorded Won 4,182 billion in revenue and Won 326 billion in operating income on a consolidated basis and Won 2,989 billion in revenue and Won 369 billion in operating income on a separate basis. In particular, the number of subscribers subscribing to “Band Data” plans, which was launched in the second quarter of 2015, has continued to steadily increase in 2017, which in turn led to an increase in data usage. The success of Luna, a smartphone launched in September 2015 that was designed to run exclusively on the Company’s networks, led to the launch of various other relatively low-priced devices and became an example of successfully targeting a niche market.

By continuing to be innovative in developing core competencies, the Company has more firmly established its position as the market leader in wireless telecommunications. The competitive environment of the wireless telecommunications industry has become more focused on retention especially through the reinforcement of marketing that is focused on innovation in increasing customer value. In the first quarter of 2018, the average monthly churn rate was 1.3%. The number of subscribers (including MVNO subscribers) as of March 31, 2018 was 30.4 million, an increase of approximately 150,000 since December 31, 2017. In particular, the number of LTE subscribers as of March 31, 2018, was 23.4 million, an increase of approximately 300,000 since December 31, 2017, solidifying the Company’s market leadership. In addition, the Company continued to sell products targeted towards second devices such as the T Kids’ phone – Joon and T Outdoor, which the Company believes shows a level of demand that can potentially lead to growth of the lifestyle enhancement platform.

Following the launch of commercial LTE services in July 2011, the Company became the first telecommunications service provider in the world to launch commercial wideband LTE-A services in June 2014. The Company launched tri-band LTE-A services in December 2014 and 5band 4.5G services in June 2017. In the first quarter of 2018, the Company commenced providing LTE service of up to 1 Gbps by utilizing five-band carrier aggregation technology and 4T4R technology. By launching various high quality services utilizing the LTE-A and wideband LTE networks such as group video conference call services and full high definition mobile IPTV streaming services, the Company plans to provide an innovative user experience, enhance customer satisfaction and increase profitability.

The Company has proved that it has superior network quality compared to its competitors according to the Korea Communications Commission quality evaluations. The Company has also proved to be the leader in Korea’s top three customer satisfaction indices: according to the National Customer Satisfaction Index, Korean Customer Satisfaction Index and Korean Standard Service Quality Index, the Company has continued to hold the leading position for 21 years, 20 years and 18 years, respectively. The Company received the highest level of evaluation in 2016 by the Korea Commission for Corporate Partnership for the fifth consecutive year and was selected for the commission’s Honored Corporation Award, demonstrating the Company’s efforts to be fair and law-abiding in its path towards creating a New ICT ecosystem.

SK Telink, a consolidated subsidiary of the Company, expanded its operations to the MVNO business based on its technical expertise and know-how obtained in its international telecommunications business and launched its MVNO service, ‘SK 7Mobile,’ which is offered at reasonable rates and provides excellent quality. SK Telink is increasing its efforts to develop low-cost distribution channels and create niche markets through targeted marketing towards customers including foreign workers, middle-aged adults and students. An MVNO leases the networks of an MNO and provides wireless telecommunication services under its own brand and fee structure, without owning telecommunication networks or frequencies.

Network O&S, a subsidiary of the Company responsible for the operation of the Company’s base stations and related transmission and power facilities, offers quality fixed-line and wireless network services to customers, including mobile office products to business customers.

PS&Marketing, a subsidiary of the Company, provides a sales platform for products of the Company and SK Broadband including fixed-line and wireless telecommunication products that address customers’ needs for various convergence products. PS&Marketing provides differentiated service to clients through the establishment of new sales channels and product development.

 

22


[Fixed-line Business]

 

A. Industry Characteristics

The Korean fixed-line services industry is marked by a relatively low level of economic sensitivity and high level of market concentration, as the government is highly selective in granting telecommunications business licenses. The competitive landscape of the fixed-line and wireless services markets is dominated by its three leading operators, the Company (including SK Broadband), KT and LG U+. Growing competition within the industry has promoted rapid technological evolution, including the convergence of fixed-line and wireless services, as well as broadcasting and telecommunications. In general, the fixed-line and wireless services markets have been characterized by relatively high profitability, cash flows and financial stability.

In the backdrop of increasing regulation in the fixed-line industry, competition to provide Giga services has intensified and the growth of high-speed internet subscribers has slowed. It is currently expected that the rate of increase of IPTV subscribers will decrease, among others, due to the conversion to digital broadcasting. In order to differentiate itself from its competitors, the Company believes that it will need to provide customers with high quality media content on its IPTV platform. Additionally, the Company expects increased demand for ultra-high definition broadcasting. Such changing trends of broadcasting consumption present opportunities to incorporate the Company’s IoT, cloud and big data technologies into the Company’s home platform business to achieve new growth. The Company plans to increase its subscriber base by providing differentiated services and focusing on marketing strategies centered around high value services such as Giga services and ultra-high definition broadcasting services.

 

B. Growth Potential

 

(Unit: in 1,000 persons for high-speed Internet and fixed-line telephone, in 1,000 terminals for IPTV)  

Classification

   As of March 31,
2018
     As of December 31,  
      2017      2016  

Fixed-line Subscribers

  High-speed Internet      21,206        21,196        20,556  
 

Fixed-line telephone

     14,862        15,039        15,746  
 

IPTV (real-time)

     N.A.        13,314        11,850  

 

* Source: MSIT website.
* The number of IPTV subscribers as of March 31, 2018 is not available as the relevant report by the MSIT has not yet been released.

 

C. Cyclical Nature and Seasonality

High-speed Internet, fixed-line telephone and IPTV services are mature markets that are comparatively less sensitive to cyclical economic changes as such services have become more of a necessity and the market has matured. The telecommunications services market overall is not expected to be particularly affected by economic downturns due to the low income elasticity of demand for telecommunication services.

 

D. Market Shares

Set forth below is the historical market share of the Company.

 

     (Unit: in percentages)  

Classification

   As of March 31,
2018
     As of December 31,  
      2017      2016  

High-speed Internet (including resales)

     25.9        25.7        25.3  

Fixed-line telephone (including Voice over Internet Protocol (“VoIP”)

     16.9        16.9        16.9  

IPTV

     N.A.        30.6        30.7  

 

* Source: MSIT website.
* With respect to Internet telephone, the market share was calculated based on market shares among the Company, KT and LG U+ and is based on the number of IP phone subscribers.
* The market share of IPTV subscribers as of March 31, 2018 is not available as the relevant report by the MSIT has not yet been released.

 

23


E. Business Overview and Competitive Strengths

For the first quarter of 2018, the Company recorded Won 750.7 billion in revenue, Won 22.1 billion in operating income and Won 6.9 billion in profit for the period for its fixed-line business. Although revenue continued to grow due to an increase in the number of premium subscriptions with higher monthly rates and purchases of video-on-demand content, operating profit decreased compared to the previous year due to an increase in operating costs related to its fixed-line business subsidiaries, among other things. The number of subscribers to each of its high-speed internet, residential fixed-line telephones, VoIP services and IPTV services was 5.48 million, 2.37 million, 1.69 million and 4.46 million, respectively (resulting in the total number of telephone subscribers being 4.06 million subscribers). In addition, SK Broadband was awarded first place for eight consecutive years, including in 2018, in the survey by the National Customer Satisfaction Index for its high-speed internet and IPTV services. This is the result of its continuous efforts to deliver new value to its customers through innovation.

Through upgrades to its infrastructure and expanding its network coverage, the Company has continued to enhance its customer base and increased the proportion of premium subscribers, mainly its Giga internet service subscribers, to 29%. In addition, by improving the distribution capabilities of its direct and indirect channels and Home & Service, it has achieved a net increase in the number of subscribers. In the future, the Company will continue to achieve qualitative growth of its subscriber base by expanding sales based on Home & Service, wireless and fixed-line bundled offerings and strengthening marketing towards its premium subscribers.

With an increase in the number of subscribers and purchases of paid content, the Company’s IPTV service business continues to grow steadily and revenue from its IPTV service in the first quarter of 2018 increased by more than 20% compared to the first quarter of 2017. In particular, the proportion of premium subscribers with higher monthly rates increased to approximately 45% as of March 31, 2018 due to the steady sale of premium subscriptions. In addition, the number of subscribers and usage rate of B tv x NUGU, an artificial intelligence-based IPTV service launched in the first quarter of 2018, have steadily increased.    

The number of Oksusu subscribers has increased due to an improved user experience through diversification of content and personalized offerings, leading to an increase in its value as a platform as the proportion of sales of paid content has increased. SK Stoa maintained its sales growth by strengthening its channel launch marketing and expanding direct sales of products. In addition, SK Stoa focused on improving its mobile platform service by upgrading its user interface and providing services such as product recommendations in order to enhance its competitiveness.

SK Telink, a provider of international telecommunications service, has been able to establish itself as a market leader as a result of its affordable pricing, proactive marketing and the quality of its services. It launched a mobile phone-based international calling service under the brand name “00700” in 1998, creating a new niche market within the long-distance telephony market that was otherwise dominated by existing service providers. In 2003, SK Telink was designated a common carrier for international calling services, which allowed the Company to expand its international calling services to fixed-line international calling services. In 2005, SK Telink obtained a license to operate VoIP services and local calling value-added services to develop into a versatile fixed-line telecommunications service provider. SK Telink plans to strategically target the convergence of wireless and fixed-line telecommunications and strengthen its existing business as a comprehensive ICT service provider, including international satellite calling services (internet, wireless and fixed-line calling services on ships, aircraft and in polar regions), and video conference call services while aiming to satisfy the diverse needs of customers by providing quality solutions at reasonable prices.

[Other Business]

 

A. Industry Characteristics

As the number of smartphones distributed in Korea exceeds 40 million, the growth in various mobile devices has spurred the rise of the service provider with a strong platform business as the leader in the ICT market. It is becoming increasingly important to enhance competitiveness by building a platform with large data capacity to handle the increase in data transmission.

 

24


A platform business acts as an intermediary by promoting interactions among various customer groups, thereby generating new values. It is important for a platform business to continually attract subscribers and users and to create an ecosystem with certain lock-in effects. A platform can exist in various forms, including as a technological standard (iOS, Android OS), a subscriber-based service platform (Facebook, Twitter) or a marketplace (Amazon, Onestore). Platform businesses are evolving and expanding globally.

A platform business has strong growth potential due to its connectivity with related services and ease of global expansion. Apple became a world-leading smartphone producer based on its innovative design and the competitive strength of its App Store platform. Google has created a new ecosystem of long-tail advertising by attracting millions of third parties to its advertising platform, as well as showing strong growth in mobile markets with its competitive platform based on Android OS. It is becoming increasingly important to enhance competitiveness through a database that can register and analyze purchase patterns of customers across all areas and a platform with large data capacity with which to utilize this database and provide differentiated services to customers.

 

B. Growth Potential

The scope and value generated by the platform business, including application and content marketplaces and N-screen services, continue to increase as smartphones and tablet computers become more popular and the bandwidth and speed of network infrastructure improve. As the wireless network evolves to LTE, business opportunities for the platform business exist, including multimedia streaming, N-screen service based on cloud technology and high-definition location-based services. Since the platform business realizes profit by connecting with advertisements or commerce sites after building a critical mass of subscribers and traffic, the recent growth in the advertising and commerce markets is expected to present an opportunity for platform businesses. The importance of building a platform with large data capacity that is connected to various digital contents and commerce is expected to increase in the future.

 

C. Domestic and Overseas Market Conditions

 

  (1) Commerce markets

The Company expects that online/mobile commerce markets will continue to grow due to the growth potential of the Internet shopping population, the strengthening of online business models by off-line operators, and the rapid rise of mobile commerce. Recently, due to the widespread use of smartphones and social media, the commercialization of location-based services and the development of big data technology, online to offline (or, O2O) business, which is a concept of attracting customers to offline stores using online and mobile environments, is being highlighted as a new field in the online commerce market industry as new business models continue to emerge.

 

  (2) Digital contents

The growth of application marketplaces, which started with Apple’s App Store, provides the platform business with new opportunities for revenue generation. The competitive paradigm is shifting from a competition among platform operators toward a competition among eco-systems that include application developers as well as platform operators.

 

D. Business Overview and Competitive Strengths

The Company plans to expand its platform ecosystem in operating its commerce business which includes marketplace and O2O businesses, such as 11st, Syrup and OK Cashbag, thereby ultimately increasing its enterprise value.

 

  (1) Commerce business

11st, an online marketplace, has continued its growth through effective marketing and customer satisfaction. Despite its later entry into the online commerce market (launched in 2008) which was already divided between Auction and G-Market, it is leading the domestic e-commerce market. Furthermore, 11st has established itself as the domestic market leader in mobile commerce, following its successful entry into and rapid growth in this market. Growth plans involving overseas joint ventures based on 11st’s business expertise have resulted in the successful launch of an open online commerce market in Turkey in partnership with Doğuş Group in March 2013. In October 2014, SK Planet and Celcom Axiata Berhad, which is a leading telecommunications service provider in Malaysia, established a joint venture, Celcom Planet, and launched online commerce services tailored to the Malaysian market in April 2015. 11st is actively engaged in operating such business in Malaysia.

 

25


Syrup is a consumer-oriented commerce service with the goal of minimizing its customers’ time and efforts while maximizing the economic benefits by providing information about coupons and events based on time, place and occasion. To achieve this goal, Syrup combines location-based services, such as geo-fencing, a virtual perimeter technology using a global positioning system (or, GPS) and Bluetooth Low Energy (or, BLE), with big data analysis of consumption patterns. Syrup’s business partners can benefit from cost-effective marketing through Syrup by utilizing statistics and analysis regarding consumers’ frequency of visits, preferred products, and consumption patterns.

OK Cashbag is a point-based loyalty marketing program which has grown to become a global top-tier loyalty marketing program since its inception in 1999. Customers have access to increased benefits through accumulation of loyalty reward points and partner companies use OK Cashbag as a marketing resource. As Korea’s largest loyalty mileage program, OK Cashbag maintains a leading position in the industry. The Company is continuing to develop its service in light of market conditions and customers’ needs to enhance its customers’ perception of point value and is reviewing and pursuing various plans to develop OK Cashbag into a service that goes beyond a mileage program that leverages the key competitiveness of OK Cashbag such as its platform and partnership network.

 

  (2) Location-based services

T-Map Navigation provides map, local information, real-time traffic information and navigation services. T-Map Navigation is one of the leading location-based service platforms in Korea. By entering the Online to Offline service area with T map Taxi, T map Public Transportation and others, the Company is expanding its mobile platform foundation that connects day to day life. In September 2016, the Company launched T-Map x NUGU, which provides a new form of intelligent car infortainment service in collaboration with the Company’s artificial intelligence (“AI”) service, NUGU. The Company has continued to secure subscribers by differentiating its product T-map x NUGU as a unique “artificial intelligence driving assistant.” The Company has also focused on providing effective “info-tainment” platforms to commercial vehicle businesses as well as providing localized content, including region-specific information and advertisements. The Company plans to further develop the T-Map Navigation platform by initiating open application programming interface-based services, providing services to more diverse types of devices and providing local area-based services.

 

  (3) Digital contents

Onestore, an application platform launched in 2016 through a joint venture between SK Telecom, KT, LG U+ and Naver’s app store, launched Onestore 2.0, which showcases the particular benefits of the application platform. The Company intends to further develop Onestore into a personalized gateway and mobile playground through enhanced product and brand competitiveness, expansion of the scope of serviceable devices, reinforcement of digital content offerings and enhancement of search services, among other things.

 

  (4) Social networking services (“SNS”) and Internet portal services

The Company’s instant messenger service, “Nate-On,” had a market share of 12.3% in the instant messenger market in Korea with 2.2 million net users during the month of March 2018. “Nate,” the Company’s Internet search portal service, realized a page-view market share of 3.5% as of March 31, 2018. (Source: Korean Click, based on fixed-line access)

2. Updates on Major Products and Services

(Unit: in millions of Won and percentages)

Business

  

Major Companies

  

Item

   Major Trademarks     

Consolidated Sales
Amount (ratio)

Wireless

   SK Telecom Co., Ltd.,
PS&Marketing Co., Ltd.,
Network O&S Co., Ltd.
   Mobile communication service,
wireless data service,
ICT service
    
T, Band Data and
others
 
 
   3,162,026 (76%)

Fixed-line

   SK Broadband Co., Ltd.,
SK Telink Co., Ltd.
   Fixed-line phone,
high speed Internet,
data and network lease service
    

B tv , 00700
international call,
SK 7mobile and others
 
 
 
   691,672 (16%)

Other

  

SK Planet Co., Ltd.,

SK TechX Co., Ltd.,

Onestore Co., Ltd.,
SK Communications Co., Ltd.,

M&Service Co., Ltd.,

SKP America, LLC,

Shopkick Mgmt. Co., Ltd.

  

Internet portal service and

e-commerce

    

11st, OK Cashbag,
NATE, Onestore and
others
 
 
 
   327,839 (8%)
           

 

     

Total

      4,181,537 (100%)
           

 

 

26


[Wireless Business]

As of March31, 2018, based on the Company’s standard monthly subscription plan, the basic service fee was Won 12,100 and the usage fee was Won 1.98 per second.

[Fixed-line Business]

SK Broadband provides broadband Internet access service, telephony, TV, corporate business services and other services for both individual and corporate customers. As of March 31, 2018, SK Broadband’s revenue comprised of 26.8% broadband Internet, 37.7% TV services, 2.4% telephony services, 32.5% corporate business services and 0.6% other telecommunications services. Price fluctuations in the different services provided by SK Broadband are due to discounts provided for long term contracts, changes in equipment costs and competition between companies.

[Other Business]

Set forth below are major products and services of the Company’s material consolidated subsidiaries.

 

Business

 

Item

 

Major Trademarks

Platform

  ICT services, new media services,
advertisement services, telecommunications sales, e-commerce and others
  Syrup, Onestore, 11st,
OK Cashbag and others

Advertisement (Display, Search)

  Online advertisement services   Nate, Nate-On

Contents and others

  Pay content sales and other services   Nate, Nate-On

 

3. Investment Status

[Wireless Business]

 

A. Investment in Progress

(Unit: in 100 millions of Won)

Business

   Classification    Investment
period
     Subject of
investment
     Investment effect      Expected
investment
amount
    Amount
already
invested
     Future
investment
 

Network/Common

   Upgrade/
New installation
    



Three
months
ended
March 31,
2018
 
 
 
 
 
    

Network,
systems and
others
 
 
 
    

Capacity increase and
quality improvement;
systems improvement
 
 
 
     21,000       870        —    
              

 

 

   

 

 

    

 

 

 
   Total               21,000     870        —    
              

 

 

   

 

 

    

 

 

 

 

* On February 5, 2018, the Company disclosed its 2018 capital expenditure budget.

 

27


B. Future Investment Plan

(Unit: in 100 millions of Won)

Business

   Expected investment amount      Expected investment for each year    Investment effect  
   Asset type    Amount      2018      2019    2020   

Network/Common

   Network,
systems and
others
     21,000        21,000      To be
determined
   To be
determined
    


Upgrades to the existing services
and expanded provision of
services including wideband
LTE-A
 
 
 
 
     

 

 

    

 

 

          

Total

        21,000        21,000      To be
determined
   To be
determined
  
     

 

 

    

 

 

          

[Fixed-line Business]

 

A. Investment in Progress

In 2018, the Company plans to make a similar level of capital expenditures to expand network coverage and upgrade its media platform compared to 2017, but does not expect such expenditures to have a material adverse effect on the Company’s financial structure through improvements in investment efficiency.

 

(Unit: in 100 millions of Won)  

Business

   Classification      Investment
period
   Subject of
investment
     Investment effect      Amount
already
invested
     Future
investment
 

High-speed Internet

    
Upgrade/
New installation

 
   Three
months
March 31,
2018
    



Backbone
and
subscriber
network/
others
 
 
 
 
 
    

Expand subscriber
networks and
facilities
 
 
 
     170       
To be
determined
 
 

Residential fixed-line telephone

                 1     

Television

                 251     

Corporate Business

             



Increase leased-
line and
integrated
information
system

 
 
 
 
     90     

Others

             

Expand networks
and required
space
 
 
 
     50     
              

 

 

    
      Total            562     
              

 

 

    

4. Revenues

(Unit: in millions of Won)

Business

   Sales
type
     Item    For the three
months ended
March 31,
2018
     For the year
ended
December 31,
2017
     For the year
ended
December 31,
2016
 

Wireless

     Services        Mobile communication      Export      10,043        20,507        17,393  
         Domestic      3,151,983        13,241,628        12,987,516  
         Subtotal      3,162,026        13,262,135        13,004,909  

Fixed-line

     Services       

Fixed-line,
B2B data,
High-speed Internet, TV


 
   Export      22,111        84,395        92,630  
         Domestic      669,561        2,639,756        2,558,563  
         Subtotal      691,672        2,724,151        2,651,193  

Other

     Services       
Display and
Search ad., Content

 
   Export      5,652        41,233        42,205  
         Domestic      322,187        1,492,494        1,393,509  
         Subtotal      327,839        1,533,727        1,435,714  
           

 

 

    

 

 

    

 

 

 
     Total         Export      37,806        146,135        152,228  
           

 

 

    

 

 

    

 

 

 
         Domestic      4,143,731        17,373,878        16,939,588  
           

 

 

    

 

 

    

 

 

 
         Total      4,181,537        17,520,013        17,091,816  
           

 

 

    

 

 

    

 

 

 

 

28


(Unit: in millions of Won)

For the three months ended

March 31, 2018

   Wireless      Fixed      Other     Sub total      Internal
transaction
    After
consolidation
 

Total sales

     3,549,792        922,330        411,197       4,883,319        (701,782     4,181,537  

Internal sales

     387,766        230,658        83,358       701,782        (701,782     —    

External sales

     3,162,026        691,672        327,839       4,181,537        —         4,181,537  

Operating income (loss)

     345,673        38,785        (58,982     325,476        —         325,476  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Profit (loss) for the period

                  906,990  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

     28,407,297        4,564,190        2,578,514       35,550,001        584,387       36,134,388  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     11,683,548        2,692,759        1,135,955       15,512,263        634,302       16,146,565  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

5. Derivative Transactions

 

A. Current Swap Contract Applying Cash Flow Risk Hedge Accounting

Currency swap contracts under cash flow hedge accounting as of March 31, 2018 are as follows:

 

Borrowing

date

  

Hedged item

   Hedged risk    Contract type    Financial institution   

Duration of

contract

Jul. 20, 2007    Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$400,000,000)    Foreign currency
risk
   Cross currency
swap
   Morgan Stanley
and five other
banks
   Jul. 20, 2007 – Jul. 20, 2027
Nov. 1, 2012    Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$700,000,000)    Foreign currency
risk
   Cross currency
swap
   Standard
Chartered and nine
other banks
   Nov. 1, 2012 – May. 1, 2018
Mar. 7, 2013    Floating-to-fixed cross currency interest rate swap (U.S. dollar denominated bonds face value of US$300,000,000)    Foreign currency
risk and interest
rate risk
   Cross currency
interest rate
swap
   DBS Bank    Mar. 7, 2013 – Mar. 7, 2020
Oct. 29, 2013    Fixed-to-fixed cross currency swap (U.S. dollar denominated bonds face value of US$300,000,000)    Foreign currency
risk
   Cross currency
swap
   Korea
Development Bank
and others
   Oct. 29, 2013 – Oct. 26, 2018
Dec. 16, 2013    Fixed-to-fixed cross currency swap (U.S. dollar denominated loan face value of US$57,535,000)    Foreign currency
risk
   Cross currency
swap
   Deutsche Bank    Dec. 16, 2013 – Apr. 29, 2022
Dec. 20, 2016    Floating-to-fixed interest rate swap (Korean Won denominated bonds face value of KRW 49,000 million)    Interest rate risk    Interest rate
swap
   Korea
Development Bank
   Dec. 20, 2016 – Dec. 20, 2021
January 30, 2017    Floating-to-fixed interest rate swap (Korean Won denominated bonds face value of KRW 32,667 million)    Interest rate risk    Interest rate
swap
   Korea
Development Bank
   Nov. 10, 2016 – Jul. 30, 2019
March 31, 2017    Floating-to-fixed interest rate swap (Korean Won denominated bonds face value of KRW 30,000 million)    Interest rate risk    Interest rate
swap
   Korea
Development Bank
   March 31, 2017 – March 31, 2020
December 21, 2017    Floating-to-fixed interest rate swap (Korean Won denominated bonds face value of KRW 50,000 million)    Interest rate risk    Interest rate
swap
   Korea
Development Bank
   December 5, 2017 – December 21, 2022

 

29


B. Treatment of Derivative Instruments on the Balance Sheet

As of March 31, 2018, fair values of the above derivatives recorded in assets or liabilities and details of derivative instruments were as follows:

 

(Unit: in millions of Won; in thousands of foreign currencies)  

Hedged item

   Fair value  
   Cash flow hedge     Trading
purposes
     Embedded
derivatives
     Total  

Non-current assets:

 

Structured bond
(face value of Won 50,000 million)

     —         9,373        —          9,373  

Fixed-to-fixed cross currency swap

(U.S. dollar denominated bonds face value of US$400,000,000)

     2,768       —          —          2,768  

Floating-to-fixed interest rate swap
(Korean Won denominated bonds face value of KRW 49,000 million)

     289       —          —          289  

Floating-to-fixed interest rate swap
(Korean Won denominated bonds face value of KRW 28,553 million)

     41       —          —          41  

Floating-to-fixed interest rate swap
(Korean Won denominated bonds face value of KRW 50,000 million)

     41       —          —          41  
          

 

 

 

Total assets:

             12,512  
          

 

 

 

Current liabilities:

          

Floating-to-fixed interest rate swap
(U.S. dollar denominated bonds face value of US$ 700,000,000)

     (30,988     —          —          (30,988

Floating-to-fixed interest rate swap
(U.S. dollar denominated bonds face value of US$ 300,000,000)

     (2,911     —          —          (2,911

Non-current liabilities:

 

Floating-to-fixed interest rate swap
(U.S. dollar denominated bonds face value of US$ 300,000,000)

     (6,989     —          —          (6,989

Fixed-to-fixed interest rate swap
(U.S. dollar denominated bonds face value of US$ 57,535,000)

     (3,901     —          —          (3,901

Floating-to-fixed interest rate swap
(Korean Won denominated bonds face value of KRW 30,000 million)

     (145     —          —          (145
          

 

 

 

Total liabilities:

             (44,934
          

 

 

 

6. Major Contracts

[SK Telecom]

Not applicable.

[SK Broadband]

Due to the nature of the telecommunication service business, SK Broadband has entered into agreements related to the joint usage of telecommunication facilities for interconnection among telecommunication lines conduits and telecommunication service providers. Below are the major contracts of SK Broadband. In addition to the below, SK Broadband has also entered into various real estate rental agreements.

 

Counterparty

  

Contract Contents

  

Contract Period

  

Note

Telecommunication service providers

   Interconnection among telecommunication service providers    —      Automatically renewed for two years at a time unless specific amendments are requested

KEPCO

   Provision of electric facilities   

From Nov. 2016 to Nov. 2018

(Unless special reasons arise, the usage period will be renewed annually)

   Use of electricity poles

Busan Transportation Corporation

   Use of telecommunication line conduits    From Aug. 2017 to Jul. 2019    Use of railway telecommunication conduit (Serviced areas to expand)

Seoul Metro

   Use of telecommunication line conduits    From Jan. 2018 to Dec. 2020    Use of railway telecommunication conduit (Serviced areas to expand)

Seoul Metro

   Use of telecommunication line conduits    From May 2010 to May 2013 (currently in discussion to decide usage unit price, future plans to enter into a contract)    Use of railway telecommunication conduit (Serviced areas to expand)

 

30


[SK Communications]

 

Counterparty

  

Purpose

   Contract Period   

Contract Amount

Kakao Corp.

   Cost-per-click Internet search advertisement    —      Amount determined based on the number of clicks

 

* SK Communications and Kakao Corp. have agreed not to publicly disclose the contract period with respect to the contract with Kakao Corp.

7. R&D Investments

Set forth below are the Company’s R&D expenditures.

 

         (Unit: in millions of Won except percentages)  

Category

  For the three
months ended
March 31, 2018
    For the year ended
December 31, 2017
    For the year ended
December 31, 2016
    Remarks  

Raw material

    21       1,261       659       —    

Labor

    36,632       139,845       116,108       —    

Depreciation

    37,267       144,301       125,827       —    

Commissioned service

    12,425       76,042       54,714       —    

Others

    10,225       53,112       53,785       —    

Total R&D costs

    96,570       414,562       351,093       —    

Accounting

   Sales and
administrative expenses
    89,425       395,276       344,787       —    
   Development expenses
(Intangible assets)
    7,145       19,285       6,306       —    

R&D cost / sales amount ratio (Total R&D costs / Current sales amount×100)

    2.31     2.37     2.05     —    

8. Other information relating to investment decisions

 

A. Trademark Policies

The Company manages its corporate brand and other product brands in a comprehensive way to protect and increase their value. The Company’s Brand Management Council in charge of overseeing its systematic corporate branding operates full-time to execute decisions involving major brands and operates ‘Comm.ON,’ an intranet system to manage the development, registration and licensing of brands.

 

B. Business-related Intellectual Property

[SK Telecom]

As of March 31, 2018, the Company held 5,432 Korean-registered patents and 1,465 foreign-registered patents. The Company holds 754 Korean-registered trademarks and owns intellectual property rights to the design of the alphabet “T.” The designed alphabet “T” is registered in all business categories for trademarks (total of 45). The number of registered patents and trademarks is subject to constant change due to the acquisition of new rights, expiration of terms, abandonments and dispositions.

 

31


[SK Broadband]

As of March 31, 2018, SK Broadband held 347 Korean-registered patents relating to high-speed Internet, telephone and IPTV service. SK Broadband also holds a number of trademarks and service marks relating to its service and brand.

[SK Planet]

As of March 31, 2018, SK Planet held 2,501 registered patents, 129 registered design marks, 1,318 registered trademarks and 9 copyrights (including those held jointly with other companies) in Korea. It also holds 171 U.S.-registered patents, 107 Chinese-registered patents, 74 Japanese-registered patents, 54 E.U.-registered patents (all including patents held jointly with other companies) and 428 registered trademarks, along with a number of other intellectual property rights, in other countries.

[SK Communications]

As of March 31, 2018, SK Communications held 93 registered patents, 26 registered design rights and 506 registered trademarks in Korea.

 

C. Business-related Pollutants and Environmental Protection

The Company does not engage in any manufacturing and therefore does not undertake any industrial processes that emit pollutants into the air or industrial processes in which hazardous materials are used.

 

32


III. FINANCIAL INFORMATION

1. Summary Financial Information (Consolidated and Separate)

 

A. Summary Financial Information (Consolidated)

Below is the summary consolidated financial information of the Company as of March 31, 2018, December 31, 2017 and December 31, 2016 and for the three months ended March 31, 2018 and 2017 and the years ended December 31, 2017 and 2016. The Company’s unaudited consolidated financial statements as of March 31, 2018 and December 31, 2017 and for the three months ended March 31, 2018 and 2017, which are prepared in accordance with K-IFRS, are attached hereto.

 

     (Unit: in millions of Won except number of companies)  
     As of
March 31, 2018
     As of
December 31, 2017
     As of
December 31, 2016
 

Assets

 

  

Current Assets

     8,471,298        6,201,799        5,996,628  

•  Cash and Cash Equivalents

     1,885,744        1,457,735        1,505,242  

•  Accounts Receivable – Trade, net

     2,090,501        2,126,007        2,240,926  

•  Accounts Receivable – Other, net

     1,510,693        1,260,835        1,121,444  

•  Others

     2,984,360        1,357,222        1,129,016  

Non-Current Assets

     27,663,090        27,226,870        25,301,035  

•  Long-Term Investment Securities

     1,096,656        887,007        828,521  

•  Investments in Associates and Joint Ventures

     10,064,015        9,538,438        7,404,323  

•  Property and Equipment, net

     9,648,556        10,144,882        10,374,212  

•  Intangible Assets, net

     3,452,451        3,586,965        3,776,354  

•  Goodwill

     1,917,813        1,915,017        1,932,452  

•  Others

     1,483,599        1,154,561        985,173  
  

 

 

    

 

 

    

 

 

 

Total Assets

     36,134,388        33,428,669        31,297,663  
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Current Liabilities

     6,883,712        7,109,123        6,444,099  

Non-Current Liabilities

     9,262,853        8,290,351        8,737,134  
  

 

 

    

 

 

    

 

 

 

Total Liabilities

     16,146,565        15,399,474        15,181,233  
  

 

 

    

 

 

    

 

 

 

Equity

        

Equity Attributable to Owners of the Parent Company

     19,791,062        17,842,139        15,971,399  

Share Capital

     44,639        44,639        44,639  

Capital Surplus (Deficit) and Other Capital Adjustments

     196,821        196,281        199,779  

Retained Earnings

     19,842,372        17,835,946        15,953,164  

Reserves

     (292,770      (234,727      (226,183

Non-controlling Interests

     196,761        187,056        145,031  
  

 

 

    

 

 

    

 

 

 

Total Equity

     19,987,823        18,029,195        16,116,430  
  

 

 

    

 

 

    

 

 

 

Total Liabilities and Equity

     36,134,388        33,428,669        31,297,663  
  

 

 

    

 

 

    

 

 

 

Number of Companies Consolidated

     43        39        38  
  

 

 

    

 

 

    

 

 

 

 

     (Unit: in millions of Won except per share amounts)  
     For the three
months ended
March 31, 2018
     For the three
months ended
March 31, 2017
     For the year ended
December 31, 2017
     For the year ended
December 31, 2016
 

Operating Revenue

     4,181,537        4,234,365        17,520,013        17,091,816  

Operating Income

     325,476        410,502        1,536,626        1,535,744  

Profit Before Income Tax

     906,990        724,220        3,403,249        2,096,139  

Profit for the Period

     693,372        583,481        2,657,595        1,660,101  

Profit for the Period Attributable to Owners of the Parent Company

     694,959        589,134        2,599,829        1,675,967  

Profit for the Period Attributable to Non-controlling Interests

     (1,587      (5,653      57,766        (15,866

 

33


            (Unit: in millions of Won except per share amounts)  
     For the three
months ended
March 31, 2018
     For the three
months ended
March 31, 2017
     For the year ended
December 31, 2017
     For the year ended
December 31, 2016
 

Basic and Diluted Earnings Per Share (Won)

     9,842        8,344        36,582        23,497  

 

B. Summary Financial Information (Separate)

Below is the summary separate financial information of the Company as of March 31, 2018, December 31, 2017 and December 31, 2016 and for the three months ended March 31, 2018 and 2017 and the years ended December 31, 2017 and 2016. The Company’s unaudited separate financial statements as of March 31, 2018 and December 31, 2017 and for the three months ended March 31, 2018 and 2017, which are prepared in accordance with K-IFRS, are attached hereto.

 

     (Unit: in millions of Won)  
     As of March 31,
2018
     As of December 31,
2017
     As of December 31,
2016
 

Assets

        

Current Assets

     6,087,078        3,768,098        3,661,115  

•  Cash and Cash Equivalents

     1,296,107        880,583        874,350  

•  Accounts Receivable – Trade, net

     1,518,649        1,520,209        1,594,504  

•  Accounts Receivable – Other, net

     1,250,604        1,003,509        772,570  

•  Others

     2,021,718        363,797        419,691  

Non-Current Assets

     21,700,256        21,789,424        21,787,459  

•  Long-Term Investment Securities

     698,010        724,603        560,966  

•  Investments in Subsidiaries and Associates

     9,186,013        9,152,321        8,726,538  

•  Property and Equipment, net

     6,521,269        6,923,133        7,298,539  

•  Intangible Assets, net

     2,947,021        3,089,545        3,275,663  

•  Goodwill

     1,306,236        1,306,236        1,306,236  

•  Others

     1,041,707        593,586        619,517  
  

 

 

    

 

 

    

 

 

 

Total Assets

     27,787,334        25,557,522        25,448,574  
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Current Liabilities

     4,840,602        4,767,401        4,464,160  

Non-Current Liabilities

     6,531,282        5,782,730        6,727,460  
  

 

 

    

 

 

    

 

 

 

Total Liabilities

     11,371,884        10,550,131        11,191,620  
  

 

 

    

 

 

    

 

 

 

Equity

        

Share Capital

     44,639        44,639        44,639  

Capital Surplus and Other Capital Adjustments

     372,034        371,895        371,481  

Retained Earnings

     16,008,029        14,512,556        13,902,627  

Reserves

     (9,252      78,301        (61,793

Total Equity

     16,415,450        15,007,391        14,256,954  
  

 

 

    

 

 

    

 

 

 

Total Liabilities and Equity

     27,787,334        25,557,522        25,448,574  
  

 

 

    

 

 

    

 

 

 

 

            (Unit: in millions of Won except per share amounts)  
     For the three
months ended
March 31, 2018
     For the three
months ended
March 31, 2017
     For the year ended
December 31, 2017
     For the year ended
December 31, 2016
 

Operating Revenue

     2,988,538        3,087,956        12,468,035        12,350,479  

Operating Income

     369,257        439,396        1,697,709        1,782,172  

Profit Before Income Tax

     477,476        489,633        1,603,808        1,562,782  

Profit for the Period

     364,427        388,206        1,331,114        1,217,274  

Basic and Diluted Earnings Per Share (Won)

     5,161        5,498        18,613        17,001  

 

34


2. Other Matters Related to Financial Information

 

A. Restatement of the Financial Statements

Not applicable.

 

B. Allowance for Doubtful Accounts

 

  (1) Allowance for Doubtful Accounts of Trade and Other Receivables

 

     (Unit: in millions of Won)  
     For the three months ended March 31, 2018  
   Gross amount      Allowance for Doubtful
Accounts
     Percentage  

Accounts receivable – trade

     2,364,784        261,828        11

Loans

     176,125        47,421        27

Accounts receivable – other

     1,715,337        73,712        4

Accrued income

     6,369        —          0

Guarantee deposits

     291,705        —          0
  

 

 

    

 

 

    

 

 

 

Total

     4,554,320        382,961        8
  

 

 

    

 

 

    

 

 

 
    
(Unit: in millions of Won)
 
     For the year ended December 31, 2017  
   Gross amount      Allowance for Doubtful
Accounts
     Percentage  

Accounts receivable – trade

     2,378,203        239,448        10

Loans

     161,015        47,311        29

Accounts receivable – other

     1,623,295        75,412        5

Accrued income

     3,979        —          0

Guarantee deposits

     296,517        —          0
  

 

 

    

 

 

    

 

 

 

Total

     4,463,009        362,171        8
  

 

 

    

 

 

    

 

 

 
     (Unit: in millions of Won)  
     For the year ended December 31, 2016  
   Gross amount      Allowance for Doubtful
Accounts
     Percentage  

Accounts receivable – trade

     2,503,139        241,828        10

Loans

     172,982        48,527        28

Accounts receivable – other

     1,350,090        78,977        6

Accrued income

     2,780        —          0

Guarantee deposits

     302,901        —          0
  

 

 

    

 

 

    

 

 

 

Total

     4,331,892        369,332        9
  

 

 

    

 

 

    

 

 

 

 

  (2) Movements in Allowance for Doubtful Accounts of Trade and Other Receivables

 

     (Unit: in millions of Won)  
     For the three
months ended
March 31, 2018
     For the year ended
December 31, 2017
     For the year ended
December 31, 2016
 

Beginning balance

     362,171        369,332        344,016  

Effect of change in accounting policy

     13,049        —          —    

Increase of allowance for doubtful accounts

     13,534        40,377        78,132  

Reversal of allowance for doubtful accounts

     —          —          —    

Write-offs

     (10,289      (70,802      (79,891

Other

     4,496        23,264        27,075  
  

 

 

    

 

 

    

 

 

 

Ending balance

     382,961        362,171        369,332  
  

 

 

    

 

 

    

 

 

 

 

35


  (3) Policies for Allowance for Doubtful Accounts

The Company establishes allowances for doubtful accounts based on the likelihood of recoverability of trade and other receivables based on their aging at the end of the period and past customer default experience for the past two years. With respect to trade receivables relating to wireless telecommunications services, the Company considers the likelihood of recovery based on past customer default experience and the length of default in connection with the type of default (e.g., whether the customer’s service has been terminated or is continued). For such trade receivables that have been overdue for more than two years after the customer’s service has been terminated, the Company records an allowance of 100% of such receivables. For such trade receivables that have been overdue for less than two years after the customer’s service has been terminated or relates to a customer that is continuing his service, the Company records an allowance of a certain percentage of such receivable. Consistent with customary practice, the Company writes off trade and other receivables for which the prescription period has passed or that are determined to be impossible or economically too costly to collect, including receivables that are less than Won 200,000 and more than six months overdue and receivables that have been determined to be the subject of identity theft.

 

  (4) Aging of Accounts Receivable

 

                 (Unit: in millions of Won)  
     As of March 31, 2018  
   Six months or
less
    From six
months to one
year
    From one year
to three years
    More than
three years
    Total  

Accounts receivable – general

     2,062,542       44,146       159,511       98,584       2,364,784  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Percentage

     87     2     7     4     100

 

C. Inventories

 

  (1) Detailed Categories of Inventories

 

     (Unit: in millions of Won)  

Account Category

   For the three
months ended
March 31, 2018
    For the year ended
December 31, 2017
    For the year ended
December 31, 2016
 

Merchandise

     233,872       243,975       225,958  

Goods in transit

     —         —         —    

Other inventories

     20,611       28,428       33,888  
  

 

 

   

 

 

   

 

 

 

Total

     254,483       272,403       259,846  
  

 

 

   

 

 

   

 

 

 

Percentage of inventories to total assets

[ Inventories / Total assets ]

     0.70     0.81     0.83

Inventory turnover

[ Cost of sales / { ( Beginning balance of inventories + Ending balance of inventories ) / 2} ]

     6.24       7.09       6.89  

 

  (2) Reporting of Inventories

The Company holds handsets, ICT equipment for offline sales, etc. in inventory. The Company conducts physical due diligence of its inventories with its auditors at the end of each year.

 

D. Fair Value Measurement

See note 2 of the notes to the Company’s unaudited consolidated financial statements as of March 31, 2018 and December 31, 2017 and for the three months ended March 31, 2018 and 2017, for more information.

 

36


E. Key Terms of Debt Securities

[SK Telecom]

The following are key terms and conditions of bonds issued by the Company.

 

Name

   Issue Date      Maturity Date      Principal
Amount
     Date of Fiscal
Agency Agreement
     Fiscal Agent  

Unsecured Bond – Series 61-2

     Dec. 27, 2011        Dec. 27, 2021        190,000        Dec. 19, 2011        Hana Financial Investment Co., Ltd.  

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 50% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 2 trillion won
   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    Submitted on April 25, 2018

 

Name

   Issue Date      Maturity Date      Principal
Amount
     Date of Fiscal
Agency Agreement
     Fiscal Agent  

Unsecured Bond – Series 62-1

     Aug. 28, 2012        Aug. 28, 2019        170,000        Aug. 22, 2012        Meritz Securities Co., Ltd.  

Unsecured Bond – Series 62-2

     Aug. 28, 2012        Aug. 28, 2022        140,000        Aug. 22, 2012        Meritz Securities Co., Ltd.  

Unsecured Bond – Series 62-3

     Aug. 28, 2012        Aug. 28, 2032        90,000        Aug. 22, 2012        Meritz Securities Co., Ltd.  

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 100% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 2 trillion won
   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    Submitted on April 25, 2018

 

37


Name

   Issue Date      Maturity Date      Principal
Amount
     Date of Fiscal
Agency Agreement
     Fiscal Agent  

Unsecured Bond – Series 63-1

     April 23, 2013        April 23, 2023        230,000        April 17, 2013        Korea Securities Finance Corp.  

Unsecured Bond – Series 63-2

     April 23, 2013        April 23, 2033        130,000        April 17, 2013        Korea Securities Finance Corp.  

Unsecured Bond – Series 64-1

     May 14, 2014        May 14, 2019        50,000        April 29, 2014        Korea Securities Finance Corp.  

Unsecured Bond – Series 64-2

     May 14, 2014        May 14, 2024        150,000        April 29, 2014        Korea Securities Finance Corp.  

Unsecured Bond – Series 64-4

     May 14, 2014        May 14, 2029        50,000        April 29, 2014        Korea Securities Finance Corp.  

Unsecured Bond – Series 65-1

     Oct. 28, 2014        Oct. 28, 2019        160,000        Oct. 16, 2014        Korea Securities Finance Corp.  

Unsecured Bond – Series 65-2

     Oct. 28, 2014        Oct. 28, 2021        150,000        Oct. 16, 2014        Korea Securities Finance Corp.  

Unsecured Bond – Series 65-3

     Oct. 28, 2014        Oct. 28, 2024        190,000        Oct. 16, 2014        Korea Securities Finance Corp.  

Unsecured Bond – Series 66-1

     Feb. 26, 2015        Feb. 26, 2022        100,000        Feb. 11, 2015        Korea Securities Finance Corp.  

Unsecured Bond – Series 66-2

     Feb. 26, 2015        Feb. 26, 2025        150,000        Feb. 11, 2015        Korea Securities Finance Corp.  

Unsecured Bond – Series 66-3

     Feb. 26, 2015        Feb. 26, 2030        50,000        Feb. 11, 2015        Korea Securities Finance Corp.  

Unsecured Bond – Series 67-1

     July 17, 2015        July 17, 2018        90,000        July 9, 2015        Korea Securities Finance Corp.  

Unsecured Bond – Series 67-2

     July 17, 2015        July 17, 2025        70,000        July 9, 2015        Korea Securities Finance Corp.  

Unsecured Bond – Series 67-3

     July 17, 2015        July 17, 2030        90,000        July 9, 2015        Korea Securities Finance Corp.  

Unsecured Bond – Series 68-1

     Nov. 30, 2015        Nov. 30, 2018        80,000        Nov. 18, 2015        Korea Securities Finance Corp.  

Unsecured Bond – Series 68-2

     Nov. 30, 2015        Nov. 30, 2025        100,000        Nov. 18, 2015        Korea Securities Finance Corp.  

Unsecured Bond – Series 68-3

     Nov. 30, 2015        Nov. 30, 2035        70,000        Nov. 18, 2015        Korea Securities Finance Corp.  

Unsecured Bond – Series 69-1

     March 4, 2016        March 4, 2019        70,000        Feb. 22, 2016        Korea Securities Finance Corp.  

Unsecured Bond – Series 69-2

     March 4, 2016        March 4, 2021        100,000        Feb. 22, 2016        Korea Securities Finance Corp.  

Unsecured Bond – Series 69-3

     March 4, 2016        March 4, 2026        90,000        Feb. 22, 2016        Korea Securities Finance Corp.  

Unsecured Bond – Series 69-4

     March 4, 2016        March 4, 2036        80,000        Feb. 22, 2016        Korea Securities Finance Corp.  

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 100% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 2 trillion won
   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    Submitted on April 25, 2018

 

Name

   Issue Date      Maturity Date      Principal
Amount
     Date of Fiscal
Agency Agreement
     Fiscal Agent

Unsecured Bond – Series 70-1

     June 3, 2016        June 3, 2019        50,000        May 24, 2016      Korea Securities Finance Corp.

Unsecured Bond – Series 70-2

     June 3, 2016        June 3, 2021        50,000        May 24, 2016      Korea Securities Finance Corp.

Unsecured Bond – Series 70-3

     June 3, 2016        June 3, 2026        120,000        May 24, 2016      Korea Securities Finance Corp.

Unsecured Bond – Series 70-4

     June 3, 2016        June 3, 2031        50,000        May 24, 2016      Korea Securities Finance Corp.

Unsecured Bond – Series 71-1

     April 25, 2017        April 25, 2020        60,000        April 13, 2017      Korea Securities Finance Corp.

Unsecured Bond – Series 71-2

     April 25, 2017        April 25, 2022        120,000        April 13, 2017      Korea Securities Finance Corp.

Unsecured Bond – Series 71-3

     April 25, 2017        April 25, 2027        100,000        April 13, 2017      Korea Securities Finance Corp.

Unsecured Bond – Series 71-4

     April 25, 2017        April 25, 2032        90,000        April 13, 2017      Korea Securities Finance Corp.

 

38


Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 150% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 5 trillion won
   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    Submitted on April 25, 2018

 

Name

   Issue Date      Maturity Date      Principal
Amount
     Date of Fiscal
Agency Agreement
     Fiscal Agent

Unsecured Bond – Series 72-1

     Nov. 10, 2017        Nov. 10, 2020        100,000        Oct. 31, 2017      Korea Securities Finance Corp.

Unsecured Bond – Series 72-2

     Nov. 10, 2017        Nov. 10, 2022        80,000        Oct. 31, 2017      Korea Securities Finance Corp.

Unsecured Bond – Series 72-3

     Nov. 10, 2017        Nov. 10, 2027        100,000        Oct. 31, 2017      Korea Securities Finance Corp.

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 150% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 50% of total assets
   Compliance Status    Compliant

Restriction on Changes of Management Structure

   Key Term   

Restriction of cross-shareholding

Exclusion from corporate group

   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    Submitted on April 25, 2018

 

Name

   Issue Date      Maturity Date      Principal
Amount
     Date of Fiscal
Agency Agreement
     Fiscal Agent

Unsecured Bond – Series 73-1

     Feb. 20, 2018        Feb. 20, 2021        110,000        Feb. 6. 2018      Korea Securities Finance Corp.

Unsecured Bond – Series 73-2

     Feb. 20, 2018        Feb. 20, 2023        100,000        Feb. 6. 2018      Korea Securities Finance Corp.

Unsecured Bond – Series 73-3

     Feb. 20, 2018        Feb. 20, 2028        200,000        Feb. 6. 2018      Korea Securities Finance Corp.

Unsecured Bond – Series 73-4

     Feb. 20, 2018        Feb. 20, 2038        90,000        Feb. 6. 2018      Korea Securities Finance Corp.

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 300%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 150% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 50% of total assets
   Compliance Status    Compliant

Restriction on Changes of Management Structure

   Key Term   

Restriction of cross-shareholding

Exclusion from corporate group

   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    To be submitted after the release of the 2018 semi-annual report

 

39


[SK Broadband]

The following are key terms and conditions of bonds issued by SK Broadband.

 

Name

   Issue Date    Maturity Date    Principal
Amount
   Date of Fiscal
Agency Agreement
   Fiscal Agent

Unsecured Bond – Series 38-2

   April 2, 2014    April 2, 2019    210,000    March 21, 2014    Korea Securities
Finance Corp.

Unsecured Bond – Series 39

   Sept. 29, 2014    Sept. 29, 2019    130,000    Sept. 17, 2014    Korea Securities
Finance Corp.

Unsecured Bond – Series 40-2

   Jan. 14, 2015    Jan. 14, 2020    160,000    Jan. 2, 2014    Korea Securities
Finance Corp.

Unsecured Bond – Series 41

   July 15, 2015    July 15, 2020    140,000    July 3, 2015    Korea Securities
Finance Corp.

Unsecured Bond – Series 42

   Oct. 6, 2015    Oct. 6, 2020    130,000    Sept. 22, 2015    Korea Securities
Finance Corp.

Unsecured Bond – Series 43-1

   Oct. 5, 2016    Oct. 5, 2019    50,000    Sept. 22, 2016    Korea Securities
Finance Corp.

Unsecured Bond – Series 43-2

   Oct. 5, 2016    Oct. 5, 2021    120,000    Sept. 22, 2016    Korea Securities
Finance Corp.

Unsecured Bond – Series 44

   Feb. 3, 2017    Feb. 3, 2022    150,000    Jan. 20, 2017    Korea Securities
Finance Corp.

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 400%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 200% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 2 trillion won
   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    Submitted on April 23, 2018

 

Name

   Issue Date    Maturity Date    Principal
Amount
     Date of Fiscal
Agency Agreement
   Fiscal Agent

Unsecured Bond – Series 45-1

   Oct. 11, 2017    Oct. 11, 2020      30,000      Sept. 20, 2017    Korea Securities
Finance Corp.

Unsecured Bond – Series 45-2

   Oct. 11, 2017    Oct. 11, 2022      140,000      Sept. 20, 2017    Korea Securities
Finance Corp.

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 400%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 200% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

 

40


Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 70% of total assets
   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    Submitted on April 23, 2018

 

Name

   Issue Date    Maturity Date    Principal
Amount
   Date of Fiscal
Agency Agreement
   Fiscal Agent

Unsecured Bond – Series 46-1

   Feb. 1, 2018    Feb. 1, 2021    70,000    Jan. 19, 2018    Korea Securities
Finance Corp.

Unsecured Bond – Series 46-2

   Feb. 1, 2018    Feb. 1, 20213    80,000    Jan. 19, 2018    Korea Securities
Finance Corp.

 

Maintenance of Financial Ratio

   Key Term    Debt ratio no greater than 400%
   Compliance Status    Compliant

Restriction on Liens

   Key Term    The total amount of secured debt not to exceed 200% of share capital as of the end of the previous fiscal year
   Compliance Status    Compliant

Restriction on Disposition of Assets

   Key Term    Disposal of assets per fiscal year not to exceed 70% of total assets
   Compliance Status    Compliant

Restriction on Changes of Management Structure

   Key Term    Restriction on changes of management structure
   Compliance Status    Compliant

Submission of Compliance Certificate

   Compliance Status    To be submitted in August 2018

 

41


IV. AUDITOR’S OPINION

1. Auditor (Consolidated)

 

Three months ended March 31, 2018

   Year ended December 31, 2017    Year ended December 31, 2016

KPMG Samjong Accounting Corp.

   KPMG Samjong Accounting Corp.    KPMG Samjong Accounting Corp.

2. Audit Opinion (Consolidated)

 

Period

  

Auditor’s opinion

  

Issues noted

Three months ended March 31, 2018

   —      —  

Year ended December 31, 2017

   Unqualified    N/A

Year ended December 31, 2016

   Unqualified    N/A

3. Remuneration for Independent Auditors for the Past Three Fiscal Years

 

A. Audit Contracts

 

     (Unit: in millions of Won except number of hours)  

Period

   Auditors   

Contents

   Fee      Total number of
hours accumulated
for the fiscal year
 

Three months ended March 31, 2018

   KPMG Samjong
Accounting
Corp.
   Quarterly review      1,700        22,058  
      Separate financial statements audit      
      Consolidated financial statements audit      
      English financial statements review and other audit task      

Year ended December 31, 2017

   KPMG Samjong
Accounting
Corp.
   Semi-annual review      1,470        21,098  
      Quarterly review      
      Separate financial statements audit      
      Consolidated financial statements audit      
      English financial statements review and other audit task      

Year ended December 31, 2016

   KPMG Samjong
Accounting
Corp.
   Semi-annual review      1,350        19,412  
      Quarterly review      
      Separate financial statements audit      
      Consolidated financial statements audit      
      English financial statements review and other audit task      

 

B. Non-Audit Services Contract with External Auditors

 

(Unit: in millions of Won)

Period

   Contract date    Service provided    Service duration        Fee    

Three months ended March 31, 2018

   March 5, 2018    Issuance of comfort letters    March 5, 2018-April 26, 2018    110

Year ended December 31, 2017

   March 10, 2017    Issuance of comfort letters    March 10, 2017-March 30, 3017    30
   April 28, 2017    Consulting services    April 28, 2017-May 12, 2017    300

Year ended December 31, 2016

   May 10, 2016    Confirmation of financial
information
   May 10-May 12, 2016    2

 

42


4. Change of Independent Auditors

Not applicable.

 

43


V. MANAGEMENT’S DISCUSSION AND ANALYSIS

Omitted in quarterly reports in accordance with Korean disclosure rules.

 

VI. CORPORATE ORGANIZATION INCLUDING BOARD OF DIRECTORS

1. Board of Directors

 

A. Overview of the Composition of the Board of Directors

The Company’s board of directors (the “Board of Directors”) is composed of eight members: five independent directors, two inside directors and one non-executive director. Within the Board, there are five committees: Independent Director Nomination Committee, Audit Committee, Compensation Committee, CapEx Review Committee and Corporate Citizenship Committee.

 

               (As of March 31, 2018)

Total number

of persons

  

Inside director

  

Non-executive

director

  

Independent directors

8    Jung Ho Park, Young Sang Ryu    Dae Sik Cho    Jae Hoon Lee, Dae Shick Oh, Jae Hyeon Ahn, Jung Ho Ahn, Youngmin Yoon

At the 34th General Meeting of Shareholders held on March 21, 2018, Young Sang Ryu was newly elected as an inside director and Youngmin Yoon was newly elected as an independent director and a member of the audit committee.

 

B. Significant Activities of the Board of Directors

 

Meeting

  

Date

  

Agenda

  

Approval

409th
(the 1st   meeting of 2018)
   February 2, 2018   

•   Business Plan for 2018

•   Financial statements as of and for the year ended December 31, 2017

•   Annual business report as of and for the year ended December 31, 2017

•   Delegation of funding through long-term borrowings in 2018

•   Lease contract with SK Broadband

•   Approval of IT SM transactions in 2018

•   Report on welfare fund for 2018

•   Share acquisition of FSK L&S

•   Establishment of SK Telecom Japan

•   Report of internal accounting management

•   Donation to community in 2017

•   Report for the period after the fourth quarter of 2017

  

Approved as proposed

 

Approved as proposed

 

Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

410th
(the 2nd   meeting of
2018)
   February 20, 2018   

•   Adoption of electronic voting system

•   Establishment of corporate governance charter

•   Grant of stock options

•   Plan for the 34th General Meeting of Shareholders

•   Donation to the Korean Fencing Association

•   Results on internal accounting management

  

Approved as proposed
Approved as proposed

Approved as proposed
Approved as proposed

Approved as proposed

 

44


Meeting

  

Date

  

Agenda

  

Approval

411th
(the 3rd   meeting of 2018)
  

 

March 31, 2018

  

•   Election of the chairman of the Board of Directors

•   Election of committee members

•   Reappointment of compliance officer

•   Transactions with SK Holdings in the second quarter of 2018

•   Transactions related to corporate bonds with SK Securities

•   Transactions related to fund management with SK Securities

•   Donation to Korea Foundation of Advance Studies for 2018

•   Donation to SK Happiness Foundation for 2018

  

Approved as proposed

Approved as proposed
Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

Approved as proposed

 

* The line items that do not show approval are for reporting purposes only.

 

C. Committees within Board of Directors

 

  (1) Committee structure (as of March 31, 2018)

 

  (a) Compensation Review Committee

 

Total number

of persons

  

Members

  

Task

  

Inside Directors

  

Independent Directors

  
3       Jae Hoon Lee, Dae Shick Oh, Jung Ho Ahn    Review CEO remuneration system and amount

 

* The Compensation Review Committee is a committee established by the resolution of the Board of Directors.

 

  (b) Capex Review Committee

 

Total number

of persons

  

Members

  

Task

  

Inside Directors

  

Independent Directors

  
6    Young Sang Ryu    Jae Hoon Lee, Dae Shick Oh, Jae Hyeon Ahn, Jung Ho Ahn, Youngmin Yoon    Review major investment plans and changes thereto

 

* The Capex Review Committee is a committee established by the resolution of the Board of Directors.

 

  (c) Corporate Citizenship Committee

 

Total number

of persons

  

Members

  

Task

  

Inside Directors

  

Independent Directors

  
3    —      Jae Hoon Lee, Jae Hyeon Ahn, Jung Ho Ahn    Review guidelines on corporate social responsibility (“CSR”) programs, etc.

 

* The Corporate Citizenship Committee is a committee established by the resolution of the Board of Directors.

 

  (d) Independent Director Nomination Committee

 

Total number

of persons

  

Members

  

Task

  

Inside Directors

  

Independent Directors

  
3    Jung Ho Park    Jae Hoon Lee, Jae Hyeon Ahn    Nomination of independent directors

 

* Under the Korean Commercial Code, a majority of the members of the Independent Director Nomination Committee should be independent directors.

 

  (e) Audit Committee

 

Total number

of persons

  

Members

  

Task

  

Inside Directors

  

Independent Directors

  
4    —      Jae Hoon Lee, Dae Shick Oh, Jae Hyeon Ahn, Youngmin Yoon    Review financial statements and supervise independent audit process, etc.

 

* The Audit Committee is a committee established under the provisions of the Articles of Incorporation and the Korean Commercial Code.

 

45


2. Audit System

The Company’s Audit Committee consists of three independent directors, Dae Shick Oh, Jae Hoon Lee and Jae Hyeon Ahn.

Major activities of the Audit Committee as of March 31, 2018 are set forth below.

 

Meeting

  

Date

  

Agenda

  

Approval

The 1st

meeting of 2018

   February 1, 2018   

•   Evaluation of internal accounting management system operation

•   Review of business and audit results for the second half of 2017 and business and audit plans for 2018

•   Evaluation of internal monitoring controls based on the opinion of the members of the Audit Committee

•   Appointment of external auditor for the period of 2018 to 2020

  

—  

Approved as proposed

 

Approved as proposed

 

—  

The 2nd

meeting of 2018

   February 19, 2018   

•   Report on the IFRS audit of fiscal year 2017

•   Report on review of 2017 internal accounting management system

•   Evaluation of internal accounting management system operation

•   Agenda and document review for the 34th General Meeting of Shareholders

•   Auditor’s report for fiscal year 2017

•   Report on contract for customer appreciation gifts to fixed-line telephone customers for 2018

  

—  

—  

Approved as proposed

Approved as proposed

 

Approved as proposed

Approved as proposed

The 3rd

meeting of 2018

   March 20, 2018   

•   Contract for maintenance services of optical cables in 2018

•   Contract for maintenance services of transmission equipment in 2018

•   Consulting contract to undertake a global project

  

Approved as proposed

Approved as proposed

Approved as proposed

 

* The line items that do not show approval are for reporting purposes only.

3. Shareholders’ Exercise of Voting Rights

 

A. Voting System and Exercise of Minority Shareholders’ Rights

Pursuant to the Articles of Incorporation as shown below, the cumulative voting system was first introduced in the general meeting of shareholders held in 2003.

 

Articles of Incorporation

  

Description

Article 32(3) (Election of Directors)    Cumulative voting under Article 382-2 of the Korean Commercial Code will not be applied for the election of directors.
Article 4 of the 12 th Supplement to the Articles of Incorporation (Interim Regulation)    Article 32(3) of the Articles of Incorporation shall remain effective until the day immediately preceding the date of the general meeting of shareholders held in 2003.

During the 34th general meeting of shareholders held on March 21, 2018, the Company adopted the electronic voting method. Pursuant to Article 368-4 of the Korean Commercial Code, the Company entrusted the Korea Securities Depository with the role of administering the electronic voting system, allowing shareholders to exercise their voting rights through electronic voting without attending the general meeting of shareholders.

Written voting system is not applicable. Minority shareholder rights were not exercised during the relevant period.

 

46


VII. SHAREHOLDERS

1. Shareholdings of the Largest Shareholder and Related Persons

 

A. Shareholdings of the Largest Shareholder and Related Persons

 

(As of March 31, 2018)      (Unit: in shares and percentages)  

Name

  

Relationship

   Type of share      Number of shares owned and ownership ratio  
         Beginning of Period      End of Period  
         Number of
shares
     Ownership
ratio
     Number of
shares
     Ownership
ratio
 

SK Holdings Co., Ltd.

  

Largest

Shareholder

     Common share        20,363,452        25.22        20,363,452        25.22  

Tae Won Chey

  

Officer of

affiliated

company

     Common share        100        0.00        100        0.00  

Dong Hyun Jang

  

Officer of

affiliated

company

     Common share        251        0.00        251        0.00  

Jung Ho Park

  

Officer of the

Company

     Common share        1,000        0.00        1,000        0.00  
        

 

 

    

 

 

    

 

 

    

 

 

 

Total

     Common share        20,364,803        25.22        20,364,803        25.22  
        

 

 

    

 

 

    

 

 

    

 

 

 

 

B. Overview of the Largest Shareholder

As of March 31, 2018, the Company’s largest shareholder was SK Holdings Co., Ltd. (“SK Holdings”) with 20,363,452 shares (25.22%) of the Company. SK Holdings was established on April 13, 1991 and was made public on the securities market for the first time under the name SK C&C Co., Ltd. on November 11, 2009. On August 3, 2015, SK Holdings merged with and into SK C&C and the merged entity was renamed SK Holdings. The main business of SK Holdings includes managing its subsidiaries as a holding company, IT services, security services and logistics services, among others.

 

C. Changes in Shareholdings of the Largest Shareholder

Changes in shareholdings of the largest shareholder are as follows:

 

(As of March 31, 2018)      (Unit: in shares and percentages)

Largest

Shareholder

   Date of the change in the
largest shareholder/

Date of change in
shareholding
   Shares Held      Holding
Ratio
    

Remarks

   January 2, 2014      20,367,290        25.22      Shin Won Chey, SKC’s Chairman, purchased 1,000 shares
   March 24, 2014      20,368,290        25.23      Shin Won Chey, SKC’s Chairman, purchased 1,000 shares
SK Holdings    January 2, 2015      20,364,290        25.22      Shin Won Chey, SKC’s Chairman, disposed of 4,000 shares
   March 20, 2015      20,363,803        25.22      Appointment of CEO Dong Hyun Jang (ownership of 251 shares of the Company), Retirement of Sung Min Ha
   June 9, 2015      20,365,006        25.22      Purchase through the Share Exchange between SK Broadband and SK Telecom (Shin Won Chey, SKC’s Chairman, purchased 1,067 shares, and Myung Hyun Cho, SK Broadband’s independent director, purchased 136 shares)
   August 3, 2015      20,364,930        25.22      Myung Hyun Cho, SK Broadband’s independent director, disposed of 76 shares
   March 24, 2017      20,364,870        25.22      Retirement of Myung Hyun Cho, SK Broadband’s independent director (ownership of 60 shares of the Company)
   March 28, 2017      20,365,370        25.22      Jung Ho Park, CEO of the Company, purchased 500 shares.
   March 30, 2017      20,365,870        25.22      Jung Ho Park, CEO of the Company, purchased 500 additional shares.
   July 7, 2017      20,364,803        25.22      Shin Won Chey, SKC’s Chairman, disposed of 1,067 shares.

 

* Shares held are the sum of shares held by SK Holdings and its related parties.

 

47


2. Distribution of Shares

 

A. Shareholders with ownership of 5% or more and others

 

(As of March 31, 2018)      (Unit: in shares and percentages)

Rank

  

Name (title)

   Common share
      Number of shares      Ownership ratio     Remarks
1    Citibank ADR      8,899,423        11.02   —  
2    SK Holdings      20,363,452        25.22   —  
3    SK Telecom      10,136,551        12.55   Treasury shares
4    National Pension Service      7,392,350        9.16   —  
Shareholdings under the Employee Stock Ownership Program      —          0.00   —  

 

B. Shareholder Distribution

 

(As of March 31, 2018)     (Unit: in shares and percentages)  

Classification

   Number of shareholders      Ratio (%)     Number of shares      Ratio (%)     Remarks  

Total minority shareholders*

     55,348        99.9     33,953,935        42.05     —    

 

* Defined as shareholders whose shareholding is less than a hundredth of the total issued and outstanding shares.

3. Share Price and Trading Volume in the Last Six Months

 

A. Domestic Securities Market

 

Types

   March 2018      February 2018      January 2018      December 2017      November 2017      October 2017  
Common stock     Highest      239,500        262,000        280,000        278,000        266,000        271,500  
 

  Lowest

     226,500        239,500        259,500        265,000        250,500        257,500  
 

  Average

     232,429        246,222        268,682        272,789        257,429        265,281  
Daily transaction volume     Highest      282,839        326,122        289,341        311,676        360,444        385,055  
 

  Lowest

     98,455        101,187        84,282        103,005        77,429        106,643  

Monthly transaction volume

     3,832,650        3,043,979        3,936,581        3,367,783        3,210,365        3,455,291  

 

48


B. Foreign Securities Market (New York Stock Exchange)

 

Types

  March 2018     February
2018
     January
2018
     December
2017
     November
2017
    October
2017
 
Depositary receipt   Highest     24.70       27.19        28.82        28.65        27.44       26.61  
 

Lowest

    23.26       24.32        27.26        27.31        25.06       24.64  
 

Average

    24.03       25.12        27.93        27.92        26.00       25.63  
Daily transaction volume       Highest     1,057,248       1,405,563        739,383        925,415        1,147,063       770,068  
 

Lowest

    296,949       257,666        266,543        149,153        143,245       224,851  

Monthly transaction volume

    11,081,045       10,347,790        9,419,815        8,743,541        9,815,224       10,629,949  

 

49


VIII. EMPLOYEES AND DIRECTORS

 

1. Employees

 

(As of March 31, 2018)      (Unit: in persons and millions of Won)  

Business segment

   Gender    Number of employees      Average
service
year
     Aggregate wage
for the first three
months of 2017
     Average wage
per person
 
      Employees without a
fixed term of
employment
     Employees with a
fixed term of
employment
     Total           
      Total      Part-time
employees
     Total      Part-time
employees
             

—  

   Male      3,888        —          60        —          3,948        13.1        210,512        53  

—  

   Female      636        —          66        —          702        9.9        26,432        38  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     4,524        —          126        —          4,650        12.6        236,945        51  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

* Based on Section 9-1-2 (Employee Status) of the Corporate Disclosure Guidelines (amended as of January 2018).

2. Compensation of Directors

 

A. Amount Approved at the Shareholders’ Meeting

 

(As of March 31, 2018)      (Unit: in millions of Won)  

Classification

   Number of Directors      Aggregate Amount Approved  

Directors

     8        12,000  

 

B. Amount Paid

B-1. Total Amount

 

(As of March 31, 2018)      (Unit: in millions of Won)  

Number of Directors

   Aggregate Amount Paid      Average Amount Paid Per Director      Remarks  

8

     2,737        342        —    

B-2. Amount by Classification

 

(As of March 31, 2018)     (Unit: in millions of Won)  

Classification

  Number of Directors     Aggregate Amount Paid     Average Amount Paid Per Director     Remarks  

Inside Directors

    3       2,648       883       —    

Independent Directors

    1       19       19       —    

Audit Committee Members

    4       70       17       —    

Auditor

    —         —         —         —    

3. Individual Compensation of Directors

Omitted in quarterly reports in accordance with Korean disclosure rules.

 

50


4. Stock Options Granted and Exercised

 

A. Stock Options Granted to Directors and Auditors

 

(As of March 31, 2018)      (Unit: in millions of Won)  

Classification

   Number of Directors      Fair Value of Stock Options      Remarks  

Inside Directors

     3        139        —    

Independent Directors

     1        —          —    

Audit Committee Members

     4        —          —    
  

 

 

    

 

 

    

 

 

 

Total

     8        139        —    
  

 

 

    

 

 

    

 

 

 

 

* See note 24 of the notes to the Company’s consolidated financial statements attached hereto for more information regarding the calculation method for the fair value of stock options.

The fair value of stock options is based on the cost associated with stock options as set forth in the Company’s statement of comprehensive income for the relevant period.

 

B. Stock Options Granted and Exercised

 

(As of March 31,2018)      (Unit: in Won and shares)  

Grantee

   Relationship
with the
Company
     Date of
Grant
     Method of
Grant
     Changes      Unexercised
Number of
Shares
     Exercise Period      Exercise
Price
 
            Granted      Exercised      Canceled           

Jung Ho Park

    
Inside
Director
 
 
    
March 24,
2017
 
 
    
Treasury
stock
 
 
     22,168        —          —          22,168       
March 25, 2019 –
March 24, 2022
 
 
     246,750  

Jung Ho Park

    
Inside
Director
 
 
    
March 24,
2017
 
 
    
Treasury
stock
 
 
     22,168        —          —          22,168       
March 25, 2020 –
March 24, 2023
 
 
     266,490  

Jung Ho Park

    
Inside
Director
 
 
    
March 24,
2017
 
 
    
Treasury
stock
 
 
     22,168        —          —          22,168       
Mach 25, 2021 –
March 24, 2024
 
 
     287,810  

Young Sang Ryu

    
Inside
Director
 
 
    
February 20,
2018
 
 
    
Treasury
stock
 
 
     1,358        —          —          1,358       
February 21, 2020
–February 20, 2023
 
 
     254,120  

Sung Won Suh

     Officer       
February 20,
2018
 
 
    
Treasury
stock
 
 
     2,755        —          —          2,755       
February 21, 2020
–February 20, 2023
 
 
     254,120  

Sang Ho Lee

     Officer       
February 20,
2018
 
 
    
Treasury
stock
 
 
     1,594              1,594       
February 21, 2020
–February 20, 2023
 
 
     254,120  

 

* On March 31, 2018, the closing price was Won 233,500.

 

51


IX. RELATED PARTY TRANSACTIONS

1. Line of Credit Extended to the Largest Shareholder and Related Parties

 

(Unit: in millions of Won)  

Name (Corporate
name)

  

Relationship

  

Account category

   Change details      Accrued
interest
     Remarks  
         Beginning     Increase      Decrease      Ending        

SK Wyverns

   Affiliate    Long-term and short-term loans      611       —          —          611        7        —    

2. Transfer of Assets to/from the Largest Shareholder and Related Parties and Other Transactions

Purchase and Dispositions of Investments

 

(As of March 31, 2018)      (Unit: in millions of Won)

Name (Corporate name)

  

Relationship

  

Details

    

Remarks

     

Type of
investment

  Change     
        Beginning     Increase      Decrease      Ending     

SK Telecom Japan Inc.

   Affiliate    Equity     —         10,316        —          10,316      Newly Established

Atlas

   Affiliate    Equity     84,495       5,329        —          89,824      Capital increase

Purchase and Disposition of Securities

 

 

(As of March 31, 2018)      (Unit: in millions of Won)

Name (Corporate name)

 

Relationship

 

Type of
Transaction

 

Transaction Date

  Object of Transaction      Transaction
Amount
    

Valuation Method

SK Holdings

  Affiliate   Purchase of equity interest   February 6, 2018     FSK L&S Co., Ltd.        18,000      Third party appraisal

Transfer of Assets

None.

3. Transactions with the Largest Shareholder and Related Parties

None.

4. Related Party Transactions

See note 29 of the notes to the Company’s unaudited consolidated financial statements as of March 31, 2018 and December 31, 2017 and for the three months ended March 31, 2018 and 2017, for more information regarding related party transactions.

 

52


5. Other Related Party Transactions (excluding Transactions with the Largest Shareholder and Related Parties listed above)

 

A. Provisional Payment and Loans (including loans on marketable securities)

 

(Unit: in millions of Won)  

Name (Corporate name)

   Relationship    Account category    Change details      Accrued
interest
     Remarks  
         Beginning      Increase      Decrease      Ending        

Baekmajang and others

   Agency    Long-term and
short-term loans
     61,930        .65,201        49,889        77,242        —          —    

Daehan Kanggun BCN Inc.

   Investee    Long-term loans      22,147        —          —          22,147        —          —    

 

 

53


X. OTHER INFORMATION RELATING TO THE PROTECTION OF INVESTORS

 

  1. Developments in the Items Mentioned in Prior Reports on Important Business Matters

 

A. Summary Minutes of the General Meeting of Shareholders

 

Date

  

Agenda

  

Resolution

32nd Fiscal Year

Meeting of

Shareholders

(March 18, 2016)

  

1.  Approval of the financial statements for the year ended December 31, 2015

2.  Amendments to Articles of Incorporation

3.  Election of directors

•  Election of an inside director

•  Election of an independent director

4.  Election of an independent director as Audit Committee member

5.  Approval of remuneration limit for directors

6.  Amendments to executive payroll regulations

  

Approved (Cash dividend, Won 9,000 per share)

 

Approved

 

Approved (Dae Sik Cho)

Approved (Dae Shick Oh)

Approved (Dae Shick Oh)

 

Approved (Won 12 billion)

Approved

 

33rd Fiscal Year

Meeting of

Shareholders

(March 24, 2017)

  

1.  Approval of the financial statements for the year ended December 31, 2016

2.  Amendments to Articles of Incorporation

3.  Election of directors

•  Election of an inside director

•  Election of a non-executive director

•  Election of an independent director

•  Election of an independent director

•  Election of an independent director

4.  Election of an independent director as Audit Committee member

•  Election of an independent director as Audit Committee member

•  Election of an independent director as Audit Committee member

5.  Approval of remuneration limit for directors

6.  Award of stock options

  

Approved (Cash dividend, Won 9,000 per share)

 

Approved

 

Approved (Jung Ho Park)

Approved (Dae Sik Cho)

Approved (Jae Hoon Lee)

Approved (Jae Hyeon Ahn)

Approved (Jung Ho Ahn)

 

Approved (Jae Hoon Lee)

 

Approved (Jae Hyeon Ahn)

 

Approved (Won 12 billion)

Approved

34th Fiscal Year

Meeting of

Shareholders

(March 21, 2018)

  

1.  Approval of the financial statements for the year ended December 31, 2017

2.  Award of stock options

3.  Election of directors

•  Election of an inside director

•  Election of an independent director

4.  Election of an independent director as Audit Committee member

5.  Approval of remuneration limit for directors

  

Approved (Cash dividend, Won 9,000 per share)

 

Approved

 

Approved (Young Sang Ryu)

Approved (Youngmin Yoon)

Approved (Youngmin Yoon)

 

Approved (Won 12 billion)

2. Contingent Liabilities

[SK Telecom]

 

A. Material Legal Proceedings

None.

B. Other Contingent Liabilities

None.

 

54


[SK Broadband]

 

A. Material Legal Proceedings

As of March 31, 2018, there were 14 lawsuits against SK Broadband (total amount of Won 3,899 million) that were pending. The Company does not believe that the outcome of these lawsuits will have a material impact on its financial statements.

 

B. Other Contingent Liabilities

 

  (1) Pledged assets and covenants

SK Broadband has entered into revolving credit facilities with a limit of Won 80 billion with two financial institutions including Shinhan Bank in relation to its loans.

In connection with public offerings of notes, SK Broadband is subject to certain restrictions with respect to its debt ratio, third party payment guarantees and other limitations on liens.

SK Broadband, upon approval by its board of directors, has provided guarantees for financial instruments amounting to Won 263 million to support employees’ funding for the Employee Stock Ownership Program.

Additionally, SK Broadband has provided “geun” mortgage amounting to Won 4,144 million to others, including Seodaemoon Guksa, on a part of its buildings in connection with the leasing of the buildings.

SK Broadband has entered into a leased line contract and a resale contract for fixed-line telecommunication services with SK Telecom.

Seoul Guarantee Insurance Company has provided a performance guarantee of Won 19,900 million to SK Broadband in connection with the performance of certain contracts and the repair of any defects.

KB Kookmin Bank has provided a payment guarantee of Won 100 million to SK Broadband in connection with its e-commerce business.

[SK Planet]

 

A. Material Legal Proceedings

As of March 31, 2018, there were six pending cases proceeding with SK Planet as the defendant and the aggregate amount of the claims was Won 3,125 million. The management cannot reasonably forecast the outcome of these cases and no amount in connection with these proceedings was recognized on the Company’s financial statements.

 

B. Other Contingent Liabilities

 

(1) Borrowings

SK Planet’s borrowings from financial institutions as of March 31, 2018 are set forth in the table below.

 

(Unit: in thousands of Won)  

Financial Institution

   Borrowing    Limit Amount      Borrowed Amount  

KEB Hana Bank

   Overdrafts      10,000,000        —    
   Standard loan      40,000,000        40,000,000  

Shinhan Bank

   Overdrafts      15,000,000        —    
   Standard loan      30,000,000        30,000,000  

Korea Development Bank

   Project finance loan      —          30,000,000  

Total

        95,000,000        100,000,000  

 

55


  (2) Payment guarantees

The material payment guarantees provided by third parties to SK Planet as of March 31, 2018 are set forth in the table below.

 

(Unit: in thousands of Won)  

Recipient

   Financial institution    Guarantee    Amount  

SK Planet

   Seoul Guarantee Insurance
Company
   Payment guarantee on e-commerce

business

     10,490,301  
   KEB Hana Bank    Guarantee fulfillment of contractual
obligations
     450,000  
      Other guarantees      707,000  

The material payment guarantee provided to a third party by SK Planet as of March 31, 2018 is set forth in the table below.

 

(Unit: in thousands of Won)  

Recipient

   Financial institution    Guarantee    Amount  

Citibank Berhad

   SK Planet    Payment guarantee for overseas
business
     12,240,000  

[SK Telink]

 

A. Material Legal Proceedings

On October 14, 2016, 12 creditors filed a lawsuit to demand a court injunction against SK Telink regarding its plan to issue new stock (219,967 shares with a face value of Won 5,000) pursuant to the resolution of SK Telink’s board of directors on September 22, 2016. The court granted SK Telink’s motion to dismiss on October 24, 2016. There is no impact on SK Telink’s business or results of operation as the claim has been conclusively dismissed.

B. Other Contingent Liabilities

Seoul Guarantee Insurance Company and KB Insurance have provided performance guarantees of Won 12.4 billion and Won 3.9 billion, respectively, to SK Telink in connection with the performance of and potential losses from certain contracts.

SK Telink has provided a performance guarantee of up to Won 219 million to business partners through Seoul Guarantee Insurance Company.

 

56


[SK Communications]

 

A. Material Legal Proceedings

As of March 31, 2018, the aggregate amount of pending claims again